Kenya's GDP growth at 4.9% year-on-year in first quarter of 2025

Kenya's economy expanded 4.9% year-on-year in Q1 2025, matching the previous year's pace, primarily fueled by agriculture and manufacturing. While overall growth was positive, key sectors like accommodation and food services, information and communication, and financial and insurance activities experienced significant decelerations from Q1 2024. The finance ministry projects 5.3% growth for both 2025 and 2026, though global trade disputes, market volatility, and extreme weather pose ongoing risks to East Africa's largest economy.

Analysis

Kenya's economy recorded stable real GDP growth of 4.9% year-on-year in Q1 2025, a rate consistent with the same period in 2024. This performance was primarily driven by positive growth in the agriculture and manufacturing sectors, which benefited from favorable weather conditions. However, a closer examination of the data reveals significant deceleration in key service industries, signaling potential underlying weakness. Growth in the accommodation and food service sector slowed dramatically to 4.1% from 38.1% a year prior, while the information and communication sector's expansion eased to 5.8% from 9.2%. Similarly, financial and insurance activities moderated to 5.1% growth compared to 9.6% in Q1 2024. While the finance ministry maintains an optimistic full-year growth forecast of 5.3% for both 2025 and 2026, this outlook is subject to considerable risks from global trade disputes, market volatility, and extreme weather, which could challenge the sustainability of the current growth trajectory.

Key Decisions for Investors

• Investors should exercise caution regarding sectors that showed sharp deceleration, particularly accommodation, ICT, and financial services, as the high growth rates of 2024 are proving unsustainable.
• Monitor external risk factors, including global trade developments and weather patterns, as these are explicitly cited by the finance ministry as threats to the official 5.3% growth forecast.
• Consider overweighting exposure to the more resilient agriculture and manufacturing sectors, which are the current primary drivers of growth, while remaining mindful of their vulnerability to climate conditions.
• Maintain a neutral-to-cautious stance on broad Kenyan market exposure until there is more clarity on whether the slowdown in the service economy will persist or stabilize.