Remarkable economic growth performance of 5.0 percent was recorded in the second Quarter of 2017, resulting to an average 4.85 percent growth in the first half of 2017 (figure 1). This was attributed to recovery in agriculture sector following the long rains, albeit insufficient. In addition government investment in infrastructure continued and the first phase of the Standard Gauge Railway completed, there was growth in tourist arrivals (figure 2) and a decline in international oil prices (figure 3) that saw a reduced import bill and local energy prices.


Following the long rains and quick government interventions, overall inflation declined from 8.04 per cent registered in August 2017, to 7.06 per cent in September 2017, converging within government target band of 3 to 7 per cent (figure 1). There was notable decrease in prices of food items between August and September 2017, including Carrots (31.9%), Cabbages (13.0%), Irish Potatoes (7.0%), loose Maize flour (4.0%), loose Maize grain (1.9%), Sugar (1.9%), and Kales (1.7%). The decline in prices of Maize flour, Maize grain and Sugar is attributable to ongoing government interventions to ensure there is adequate food supply. A similar picture is depicted by the wholesale prices (figure 4).


Due to marginal increase in crude oil prices over the August-September 2017 period, average retail prices of petrol and diesel increased slightly (by 2.3% and 1.2% respectively) (figure 3). However, despite reduction in cost of electricity (by 10.7% per 50Kwh) over the review period due to cut back on thermal generation in favor of geo-thermal sources (figure 2), a reduction in electricity consumption was recorded, which could signify a weaker economic activity in the third quarter. Furthermore, slowing coffee exports are expected to continue during the low harvest season of June to December; while volumes of tea exports are gearing to peak during the main harvesting season of October to December (figure 2).


The bearish performance in the stock market index over the August-September 2017 period depicts a decline in investor confidence, as traders on the bourse adopt a wait and see stance, following heightened political uncertainty with the prolonged electioneering period (figure 1). Political uncertainty is a key downside risk to economic activity in the third and fourth quarters of 2017. On the upside, despite travel advisories issued by leading source markets, international tourist arrivals peaked in July, although the recovery is yet to get back to performance in 2013.


Figure 1: Trends in Economic Performance, Inflation and Stock Market

Data source: CBK, KNBS


Figure 2: Trends in Key Economic Performance Indicators

Data source: KNBS


Figure 3: Trends in Local Retail and Global Crude Oil Prices

Data source: KNBS


Figure 4: Trends in Monthly Wholesale Food Prices

Data source: Wholesale prices, Ministry of Agriculture