Economy

Q2 GDP contracts by record 5.7pc on virus

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Summary

  • Kenya’s economic activities were plunged into a downturn by significant contractions in key drivers such as accommodation and food services, education, taxes on products as well as transportation and storage.
  • The dominant agriculture sector, which accounts for more than a third of growth, however, remained resilient, helping prevent the economy from sinking into a deeper contraction.
  • The global travel restrictions hit the accommodation and food services hardest, with the sector largely dependent on tourism contracting 83.3 percent compared with a growth of 12.1 percent in the corresponding quarter in 2019.

Kenya’s economy contracted by 5.7 percent in the second quarter of this year, the deepest in nearly two decades, hit by the economic fallout from the Covid-19 pandemic.

This is the only quarter-two GDP contraction ever registered since 2001 — according to available data by the Kenya National Bureau of Statistics(KNBS)—signalling the impact of the pandemic on key economic sectors such as transport, manufacturing and hospitality.

The KNBS data further shows it is the steepest quarter-on-quarter GDP shrink since the third -quarter of 2002 when the economy contracted by 2.5 percent.

Economic activity was hurt by lockdown measures imposed to curb the spread of coronavirus including a country-wide dusk-to-dawn curfew, restrictions on travel in and out of the capital Nairobi and closure of learning institutions, hotels and restaurants.

“Although Kenya was somehow spared the severe effects of the Covid-19 pandemic in the first quarter of 2020, the economy was significantly affected by the disease in the second quarter of 2020,” KNBS said in a delayed GDP report.

“As a result, the performance of most sectors of the economy were to a large extent negatively affected by these measures with output considerably constrained and in some cases came to a complete halt.”

The data shows the impact of the Covid-19 restrictions on economy in the second quarter was more severe than in 2008 when economy still grew by 3.2 percent in the aftermath of widespread post-election violence and a biting global financial crisis.

Kenya’s economic activities were plunged into a downturn by significant contractions in key drivers such as accommodation and food services, education, taxes on products as well as transportation and storage.

The dominant agriculture sector, which accounts for more than a third of growth, however, remained resilient, helping prevent the economy from sinking into a deeper contraction.

The global travel restrictions hit the accommodation and food services hardest, with the sector largely dependent on tourism contracting 83.3 percent compared with a growth of 12.1 percent in the corresponding quarter in 2019.

“This sector was the worst hit by the Covid-19 pandemic as businesses in accommodation and food services sector either operated under minimum capacity or completely closed down,” KNBS researchers wrote in the GDP report.

“The significantly reduced number of visitors’ arrivals as well as restrictions of movement within the country adversely affected the sector’s performance. In addition, the fear of contracting the virus by individuals led to people avoiding hotels and restaurants, further affecting its performance negatively.”

Manufacturing also contracted 3.9 percent in the review quarter compared with a 4.0 percent growth a year earlier, while transportation and storage slumped 11.6 percent from a 7.6 per cent growth.

The economy was, however, cushioned by farming activities, which expanded by 6.4 percent compared with 2.9 percent in a similar quarter last year on the back of a favourable weather which helped boost tea production, cane deliveries, milk intake and fruit exports.

“Tea production increased by 34.5 percent from 106,314 metric tonnes in the second quarter of 2019 to 143,037 metric tonnes in the review period. Fruit exports increased by 34.8 percent to stand at 35,531 metric tonnes in the second quarter of 2020,” KNBS said.

Key sectors that posted growth include financial and insurance services, which posted a slowed growth of 4.2 percent compared with 5.2 percent previously, while construction also expanded at a slower pace of 3.9 percent compared with 7.2 percent in 2019.

Covid-19-related lockdowns triggered a massive economic fallout with a majority of firms resorting to laying off workers, slashing salaries and sending staff on unpaid leave to cut operating costs amid depressed demand which started before the coronavirus pandemic struck.

Some 1.72 million workers lost jobs in three months to June, a quarterly labour force survey by KNBS showed, with those aged below 35 the hardest hit.

The Treasury said in June it expected growth to slow to 2.5 percent this year from 5.4 percent last year due to the impact of the Covid-19 pandemic,.

The International Monetary Fund (IMF) is more pessimistic, forecasting a contraction this year.