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Poor weather and reduced lending by commercials banks kept the first quarter economic growth at its slowest pace in five years as inflation dropped for the first time this year.

 

Kenya's economy expanded 4.7 per cent in the first quarter of this year, down from 5.9 per cent in the same period of 2016, the statistics office said Friday.

 

Kenya National Bureau of Statistics (KNBS) say the growth was hit by drought that left around 2.7 million people in need of food aid and drove inflation to a five-year high on costly food.

 

But food prices eased this month, slowing down inflation to 9.21 per cent in June, from 11.70 per cent a month earlier — the first drop since December.

The poor weather saw the first contraction or shrinkage of the agriculture sector since 2009, a blow to sector that employs most Kenyan and accounts for a quarter of GDP.

 

Commercial banks’ lending to private sector in the three months to March grew at the slowest pace in more than a decade, further dampening growth.

 

Slower lending left key economic and job growth drivers such as manufacturing and agriculture struggling for funding.

 

"The quarter’s growth was negatively impacted on by drought that emanated from failure of the 2016 short rains and delay in the onset of the 2017 long rains," said the KNBS.

 

"A slowdown in credit uptake also slowed economic growth during the period under review," it added.

 

Credit squeeze

 

The Central Bank of Kenya (CBK) data shows that lending to the private sector expanded by a paltry 3.3 per cent in the year to March 2017, the lowest growth rate since January 2005.

 

Banks insist last September’s capping of interest rates is to blame for the credit squeeze, having cut their lending to riskier customers such as SMEs.

 

The central bank considers a 12 to 15 per cent growth of lending ideal for robust economic expansion.

 

Agriculture sector shrunk 1.1 per cent to Sh286.3 billion — the first in eight years. Rains in May and a Sh6 billion maize subsidy helped ease food prices in June.

 

A packet of maize flour dropped to Sh119 in last month from Sh129 in May while pouch of milk and a kilo of sugar dropped by Sh3.90 and Sh12 respectively in the month.

 

“The year-on-year food inflation dropped from 21.52 per cent in May to 15.81 per cent in June,” said the KNBS.

 

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