The World Bank Group has raised Kenya’s economic growth outlook for 2025 on a stronger-than-expected rebound in the construction sector, signalling renewed momentum in public projects such as roads and affordable housing.
In its latest Kenya Economic Update, the global lender projects the country’s GDP —an output measure of all economic activities by the government, companies and individuals— to expand by 4.9 percent this year, an upgrade from 4.5 percent in May.
The revision follows what the bank described as “an upward surprise” in the second quarter of 2025 when economic activity accelerated faster than anticipated, supported largely by an unexpected revival in construction.
The sector’s performance had previously contracted to levels last seen more than two decades ago, hurt by piling government arrears to contractors and constrained credit.
“Quarter two 2025 represented an upward surprise for us. There was faster than expected recovery in the construction sector. We didn’t anticipate that before,” Jorge Tudela Pye, World Bank Country Economist for Kenya, said on Monday during the launch of the report.
“This translates into higher growth across the sectors: services, agriculture and industry.”
The Kenya National Bureau of Statistics (KNBS) reported in October that real GDP expanded by five percent in the second quarter of the year compared with 4.6 percent in a similar period last year, partly driven by the rebound in construction activity.
The KNBS data showed the sector expanded 5.7 percent in the quarter, reversing a two percent contraction in the same period a year earlier.
The turnaround was driven by increased spending on affordable housing projects and a renewed push by President William Ruto’s administration to settle long-standing road construction arrears.
Central to the clearance of a backlog of contractor debts was the securitisation of part of the Road Maintenance Levy Fund — collected from the Sh25 per litre tax on petrol and diesel.
Kenya plans to issue Sh300 billion in road bonds, backed by Sh12 of every Sh25 per litre of fuel. Of this, Sh7 will settle pending bills through a first bond tranche of Sh175 billion, while Sh5 will service a second bond of Sh125 billion covering future road works.
The World Bank report further says that falling interest rates, relatively stable inflation and improved credit growth have also helped lift economic activity, boosting demand for building materials, transport services and specialised labour.
Growth in GDP should ideally mean people are earning and spending more money. This should result in increased tax receipts, which the government should ideally spend on improving public services such as education, healthcare and security.
The GDP measure has, however, been criticised for not showing how income is split across various working groups, hence expansion in GDP could sometimes be a result of the rich getting richer and the poor getting poorer.
The report shows formal wage employment has grown by an average of 0.8 percent over the past decade through 2024, while real wages per worker have fallen by 10.7 percent.
Informal jobs —typically lower-paying and less productive— continue to dominate Kenya’s tough labour market, with formal employment falling to 15.5 percent of the workforce in 2024, down from 18.5 percent in 2010.
“What that means is that most workers joining the labour force, especially the youth, are obtaining informal, lower-paying, and unproductive jobs,” Mr Pye said.
“Deeper structural reforms are needed to unlock productivity growth that translates into higher real wages and creates better living conditions for Kenyans,” he added.
Despite the stronger short-term outlook, the World Bank cautioned that Kenya faces persistent vulnerabilities such as revenue shortfalls, climate-related shocks, political and social tensions as well as heightened geopolitical tensions that can affect commodity prices like oil prices that could stall momentum.
