Kenya’s real GDP growth accelerated to 5.3% y/y in Q1 23, supported by a recovery in the agriculture sector

Kenya: Real GDP expanded by 5.3% y/y in Q1 23 compared with 3.7% in Q4 22. While a detailed GDP report is not yet available, Bloomberg data show that the expansion in GDP was supported by output in the agriculture sector, which saw its production rise following four consecutive quarters of contraction.

The pick-up in Kenya’s growth momentum was broad based, with most sectors of the economy posting faster growth rates relative to the prior quarter. This was against our expectation for growth to slow, as we had expected higher inflation, tighter monetary policy, and violent anti-government protests to have dampened economic activity. The faster pace of expansion was also contradictory to the picture painted by the PMI, which slipped into contractionary territory, averaging 49.3 in Q1 23 compared with 50.9 in Q4 22. Of the 16 sectors, only four (utilities, finance, education and ‘other services’) posted slower growth rates. 

Looking ahead, we believe the economic outlook may be challenging in the near term. Inflation remained elevated in Q2 23, with the currency depreciating further and the central bank tightening the policy rate by a further 100bp. The PMI for the first two months of Q2 averaged 47.7, reflecting a further decline from Q1. However, the better-than-expected first quarter outcome bodes well for full-year growth.  We now think 2023 growth could come in around 5.0% (2022: 4.8%), higher than our previous estimate of 4.6% but still below the National Treasury’s 5.5% estimate. 

While the improved growth outlook bodes well for revenue collections, the Treasury’s plan to raise tax revenue by 19.8% in FY2023/24 faces a new challenge after the High Court on Friday temporarily suspended the implementation of certain taxes in response to a challenge by an opposition senator. 

Angola:  Real GDP expanded by 0.3% y/y in Q1 23 (Q4 22: 3.0%), registering the slowest pace of growth since Q1 21 as contractions in the oil and finance sectors weighed on overall output. Most sectors of the economy, barring diamond output, utilities and construction sectors posted slower growth rates – pointing to broad-based weakness in economic activity.

The weaker pace of expansion in Q1 23 affirms our view that overall growth is likely to slow this year. We maintain our expectation for economic growth of 2.6% in 2023 (2022: 3.0%) but reiterate that the near- to medium-term outlook is fraught with risks and uncertainties that could derail growth. We believe that oil production may not grow much from last year’s levels. While the non-oil sector could see solid growth again this year, the recent sharp depreciation of the kwanza against the USD, along with the removal of fuel subsidies, poses a major risk to the inflation outlook, which could weigh on household demand and thereby overall growth.