Construction sector rebound propels Kenya's economic growth in Q2

Sizable growth in most areas, including agriculture, transport and a rebound in the construction sector, driven by state projects, boosted Kenya’s economy in the three months to June.

The economic update by Kenya National Bureau of Statistics (KNBS) for the second quarter of the year shows that the country’s Gross Domestic Product expanded by five per cent, up from 4.6 per cent reported in the corresponding quarter last year.

This marks a slight improvement from the 4.9 per cent growth posted in the previous quarter, impacted mainly by anti-government protests which characterised the end of the last financial year.

The statistics body attributes the growth largely to robust performances in agriculture, forestry and fishing, which recorded a 4.4 per cent growth, transportation and storage (5.4 per cent), and financial and insurance activities (6.6 per cent).

“The growth was also supported by rebounds in construction and mining and quarrying activities that rose by 5.7 and 15.3 per cent, respectively, after contracting in the second quarter of 2024,” KNBS said in the Q2 GDP report.

Electricity and water supply activities also recorded improved performance during the quarter, posting a growth of 5.7 per cent compared to 1.2 per cent growth in the corresponding period of the previous year.

The Gross Value Added (GVA), the output (at basic prices) minus intermediate consumption (at purchaser prices) for agricultural activities, recorded a slight deceleration compared to the corresponding quarter of 2024.

KNBS, however, maintains a brave face, saying favourable weather conditions continued to support both crop and animal production during the review period.

Nevertheless, the report notes that the quarter under review recorded improved performance in most of the key macroeconomic indicators.

“The average inflation for the second quarter of 2025 eased to 3.89 per cent from an average of 4.87 per cent in a similar quarter of 2024 on account of lower prices of food and non-alcoholic beverages.”

The Kenyan Shilling also strengthened against the US Dollar by 1.2 per cent.

In contrast, the local currency weakened against other major international currencies, including the Japanese Yen, the Pound Sterling, and the Euro, by 6.5 per cent, 4.5 per cent, and 4.0 per cent, respectively.

Regionally, the Kenyan Shilling weakened against the Ugandan Shilling and the South African Rand by 2.7 per cent and 0.5 per cent, respectively, but appreciated against the Tanzanian Shilling.

The Central Bank Rate (CBR) was lowered to 10.00 per cent for both April and May 2025 and further to 9.75 per cent in June 2025, compared to 13 per cent in June 2024.

Broad money supply (M3) rose by 8.1 per cent during the quarter to stand at Sh6.45 trillion at the end of June.

Similarly, the NSE 20 Share Index rose from 1656.5 points in June 2024 to stand at 2440.3 points in June 2025, representing a 47.0 per cent growth.

In August, President William Ruto said Kenya’s economy was forecast to grow 5.6 per cent this year, up from 4.7 percent last year.

Although the country’s microeconomics improved during the quarter under review, the cost of living worsened in the month of September, with inflation rising slightly to 4.6 per cent year-on-year in September, up from 4.5 per cent in August.

According to KNBS, month-on-month inflation was at 0.2 per cent in September, with the overall Consumer Price Index (CPI) increasing to 146.56 from 146.21 the previous month.

The increase was mainly driven by a rise in prices of food and non-alcoholic drinks (8.4 per cent), transport (four per cent), and housing, water, electricity, gas and other fuels (1.4 per cent.

“These three divisions together account for over 57 per cent of the total weight across the 13 major expenditure categories,” the report added.

The Central Bank of Kenya (CBK) targets year-on-year inflation to remain within the range of 2.5 per cent to 7.5 per cent as its benchmark for its monetary policy decisions, allowing for external and domestic shocks, such as changes in oil prices or weather-related events.

The current account balance worsened by 76.6 per cent to a deficit of Sh83.7 billion in the second quarter of 2025 from a deficit of Sh47.4 billion recorded in the same quarter of the previous year.

This was primarily driven by an 11.7 per cent widening of the merchandise trade deficit to Sh348.4 billion during the corresponding period.

The expanded merchandise trade deficit was mainly due to a 16.5 per cent decline in exports, which was relatively faster compared to 4.5 per cent decrease in imports over the same period.

Further, net inflows in the services account contracted from a surplus of Sh70.8 billion in the second quarter of 2024 to a surplus of Sh65.5 billion in the corresponding quarter of 2025.

This was mainly as a result of a Sh12 billion increase in services expenditure compared to a Sh6.6 billion increase in services revenue in the period under review. 

Conversely, the net primary and secondary income accounts showed improvement during the review period.

The deficit in the primary income account narrowed to  Sh43.8 billion from Sh45.2 billion during a similar quarter of 2024, while the surplus in the secondary income account increased to Sh243.1 billion from Sh238.8 billion over the same period.

The Improvement in the secondary income account was partly boosted by a 7.3 per cent rise in diaspora remittances to Sh168.9 billion in the second quarter of 2025.

Net inflows in the financial account increased substantially to Sh136.5 billion from Sh35.7 billion in the second quarter of 2024.

This was partly attributable to net inflows recorded in the Portfolio Investment category in the quarter under review compared to net outflows registered in the same category during the previous quarter.