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Kenya's economy grows 5% in second quarter of 2025

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  Published in Business and Finance on Tuesday, September 30th 2025 at 14:13 GMT by reuters.com

Kenya’s Economy Accelerates: 5% Growth in the Second Quarter of 2025

Kenya’s economy surged by a robust 5.0 % in the second quarter of 2025, according to the latest data released by the Kenya National Bureau of Statistics (KNBS). The jump represents a sharp uptick from the 3.3 % growth registered in the first quarter and points to a sustained momentum that analysts say could lift the country closer to its medium‑term growth targets. The data, published on 30 September 2025, come at a time when the nation is grappling with high inflation, a depreciating shilling and a need to maintain investor confidence in the wake of the global economic slowdown.

Key Drivers of the Upswing

1. Services Outpacing Other Sectors

The services sector – which includes tourism, retail, and financial services – was the primary engine of growth, expanding by 6.4 %. The sector’s contribution to the Gross Domestic Product (GDP) rose from 68.1 % in Q1 to 69.3 % in Q2, reflecting a steady rebound in domestic tourism after easing travel restrictions. Retail sales grew by 7.1 %, supported by a surge in e‑commerce activity as Kenya’s digital infrastructure continues to improve.

2. Agriculture’s Resilient Performance

Agriculture, traditionally the backbone of Kenya’s economy, posted a 4.2 % expansion, outpacing the 2.8 % growth seen in Q1. This increase was largely driven by a bumper harvest of maize, beans, and fruits, coupled with an uptick in export volumes to East African and Asian markets. The sector’s contribution to GDP rose from 22.9 % to 23.4 %, underscoring the importance of agricultural productivity gains for overall economic resilience.

3. Industrial and Construction Growth

Industrial output expanded by 3.7 %, buoyed by increased manufacturing of textiles, processed foods, and construction materials. The construction sector recorded a 5.6 % rise, propelled by a series of large infrastructure projects financed under the Government’s “Build Kenya, Build Africa” agenda. These projects have been critical in providing employment and boosting local supply chains.

Inflation, Fiscal Policy and Monetary Conditions

While the GDP figures signal a healthy expansion, inflation remains a chief concern. The annual inflation rate stood at 12.4 % in August 2025, up from 11.2 % in July, largely driven by food price pressures. In response, the Central Bank of Kenya (CBK) lifted the policy rate to 9.25 % in early September, signalling a tightening stance to tame inflation without stifling growth.

Kenya’s public finances are under pressure, with the fiscal deficit widening to 4.5 % of GDP in Q2, up from 4.1 % in Q1. The deficit is largely attributed to higher capital expenditure on infrastructure and a modest decline in tax revenues, which fell by 1.2 % due to weaker corporate profits. The government, however, remains committed to maintaining a net borrowing level below 60 % of GDP, a target endorsed by the International Monetary Fund (IMF) in its latest country programme.

Global Context and External Factors

Kenya’s growth trajectory is also being shaped by external developments. Global commodity prices, especially for oil and copper, have remained relatively stable, supporting import costs. The country has benefited from favorable trade terms under the African Continental Free Trade Area (AfCFTA), which has expanded its market access for Kenyan products across sub‑Saharan Africa. Moreover, the ongoing renegotiation of the Kenya–Ethiopia trade agreement has opened new corridors for goods and services, further reinforcing export competitiveness.

The IMF’s latest forecast, released in August 2025, projects Kenya’s GDP growth to average 5.2 % over the 2025 calendar year. The Bank of International Settlements’ World Economic Outlook 2025 also highlights the East African region as one of the fastest‑growing parts of the global economy, citing Kenya as a leading contributor.

Policy Recommendations and Future Outlook

The Kenyan government has outlined a multi‑pronged strategy to sustain this growth momentum. Key initiatives include:

1. Investment in Digital Infrastructure: The “Digital Kenya” plan aims to expand broadband coverage to 80 % of the population by 2026, thereby fostering e‑commerce, fintech, and remote work.

2. Agricultural Modernisation: The government is piloting precision‑agriculture technologies and offering subsidies for irrigation systems to further boost yields.

3. Financial Inclusion: New policies are targeting an increase in the number of banked households from 32 % to 45 % by 2028, through mobile banking and micro‑credit programmes.

4. Fiscal Discipline: The Ministry of Finance has signaled a phased approach to reducing the fiscal deficit, with a target of bringing it below 3 % of GDP by 2027.

Challenges on the Horizon

Despite these positive indicators, analysts caution that the economy faces structural challenges. A persistent skills gap in the labour market could hinder productivity gains. Additionally, the global trend towards carbon neutrality may impact Kenya’s reliance on fossil‑fuel‑based energy, necessitating a shift towards renewable sources.

In terms of risk, the Kenyan shilling’s continued depreciation could erode purchasing power and increase the cost of imported inputs, potentially pressurising the inflationary environment. The Central Bank’s policy tightening will have to strike a delicate balance between curbing inflation and maintaining an investment‑friendly climate.

Looking Ahead

With the 5 % growth figure, Kenya has positioned itself as one of the most dynamic economies in East Africa. The robust performance in the second quarter signals that policy measures and sectoral resilience are paying off. However, sustaining this pace will require continued focus on structural reforms, prudent fiscal management, and adaptive monetary policy. As the country navigates the complexities of a global economic slowdown, its ability to translate growth into inclusive prosperity will be the ultimate test for policymakers, businesses, and citizens alike.