Kenya’s economy grew by 4.9 per cent in first quarter of this year, matching last year’s pace, but offered little relief on the ground as manufacturing, tourism, and private sector lending stalled, leaving households and small businesses struggling. According to the Kenya National Bureau of ac (KNBS), inflation fell sharply to an average of 3.45 per cent in Q1 2025, down from 6.29 per cent a year earlier, primarily driven by lower food and beverage prices.

“In the first quarter of 2025, the real GDP grew by 4.9 per cent compared to a similar growth in the corresponding quarter of 2024. All sectors of the economy recorded positive growths during the quarter under review, albeit in varying magnitudes,” said KNBS Director General Macdonald Obudho.

The shilling posted a rare and strong appreciation streak, gaining 13.6 per cent against the US dollar, 14.2 per cent against the British Pound, and 16.3 per cent against the Euro. Gains were also registered against regional currencies, including a 16.7 per cent appreciation against the Tanzanian shilling.

But beyond the encouraging macro metrics, several sectors show signs of stagnation or uneven recovery, raising concerns about the inclusiveness of this growth. Nowhere is the slowdown more visible than in the accommodation and food service sector, which grew by just 4.1 per cent — a sharp drop from the 38.1 per cent surge recorded in Q1 2024.

Visitor arrivals through Jomo Kenyatta and Mombasa International airports increased by a marginal 0.5 per cent, compared to 10.4 per cent a year earlier. This deceleration signals stalled momentum in tourism recovery, potentially due to global uncertainty, or weak international marketing.

Although monetary policy was loosened during the quarter with the Central Bank Rate dropping from 13 per cent in March 2024 to 10.75 per cent in March 2025 — credit to the private sector remained largely flat, growing by just 0.1 per cent.  In contrast, net lending to the government surged by 21.0 per cent to Sh2.52 trillion, a clear signal that banks are favouring the public sector over riskier private borrowers.

The total domestic credit stock grew by 5.9 per cent to Sh7.35 trillion, but households and SMEs are increasingly sidelined. This divergence suggests a crowding-out effect and raises questions about the trickle-down impact of growth.

Improved production

Agriculture, Kenya’s largest employer, posted a 6.0 per cent growth, supported by good rainfall and improved production of milk, sugarcane, and horticultural exports.

Milk deliveries rose from 218.8 million litres to 250.6 million litres, while flower and vegetable exports increased by 18.5 and 7.2 per cent respectively. However, tea production — a critical forex earner — dropped by 18.9 per cent to 136.9,000 tonnes.  “This performance was driven by favourable weather conditions experienced in most parts of the country involved in crop and animal production,” the report notes.

The manufacturing sector remained sluggish, growing by just 2.1 per cent, up slightly from 1.9 per cent in Q1 2024. Food manufacturing was boosted by a 39.3 percent surge in coffee auctions and an 11.9 per cent rise in sugar output.

Cement production rose by 13.9 per cent, while galvanised steel output grew by 11.3 per cent. However, credit to the manufacturing sector declined to Sh566.2 billion, down from Sh598.6 billion the previous year.

Construction grew by 3.0 per cent, up from 0.4 per cent, driven by strong cement consumption (up 20.3 per cent to 2.34 million tonnes) and increased iron and steel imports.

However, bitumen imports fell, possibly pointing to slower road construction activity. Credit to construction enterprises increased by 11.6 per cent to Sh157.3 billion. Transport and Storage posted a 3.8 per cent growth, driven by port activity and a 39.7 per cent jump in SGR cargo volume.

Mombasa Port handled 10.61 million tonnes of cargo in Q1 2025 compared to 9.42 million tonnes a year earlier, driven by bulk cargo growth.  SGR revenue from cargo rose by 17.7 per cent to Sh3.8 billion. However, SGR passenger numbers dipped slightly from 531,700 to 529,600 over the same period, suggesting sluggish growth in domestic passenger mobility.