he Gross Domestic Product (GDP) is estimated to have expanded by 5.6 per cent in 2015 which was a slight improvement compared to a 5.3 per cent growth in 2014. This growth was mainly supported by a stable macroeconomic environment and improvement in outputs of agriculture; construction; finance and insurance and real estate. However, growth slowed in a number of sectors including; information and communication, mining and quarrying, and wholesale and retail trade. Similarly, growth in taxes on products slowed during the review period. The growth of accommodation and food services contracted by 1.3 per cent,a less severe performance compared to a revised decline of 16.7 per cent in 2014.
The growth in agriculture was mainly supported by improved weather condition that resulted in significant increases in output of maize, horticultural produce and livestock. However, heavy rains in 2015 were unfavorable to cultivation of some crops like potatoes and tomatoes. Nevertheless the significance of crops that were favoured by the weather far outweighed that of crops negatively impacted upon, resulting in an impressive growth of 5.6 per cent in the agriculture sector.
Construction recorded the fastest growth of 13.6 per cent in 2015 compared to 13.1 per cent in 2014. Growth in construction activities was mainly driven by the ongoing public infrastructure development coupled with the resilient private sector’s expansion in the real estate sector. The financial and insurance sector maintained a robust expansion to grow at 8.7 per cent in 2015 from 8.3 per cent in 2014. This growth was mirrored by a 19.2 per cent rise in the total domestic credit to KSh 2,830.5 billion in December 2015 compared to a growth of 16.1 per cent in December 2014.
Key macroeconomic indicators remained relatively stable and supportive of the growth during the year under review. Overall inflation eased from 6.9 per cent in 2014 to 6.6 per cent in 2015 mainly due to lower prices of energy and transport. Monthly inflation rates fluctuated between 5.5 per cent and 8.0 per cent but were largely contained within the Central Bank’s target throughout the year. Generally, the Shilling depreciated against its major trading currencies as reflected by the weighted trade index which worsened by 5.7 per cent during the review period. The Shilling was mainly supported by a significant fall in the international oil prices as the country cut-back expenditure on importation of petroleum fuels and increased diaspora remittances. However, lower earnings from the tourism sector impacted negatively on the exchange rate of the Shilling in 2015.
In response to rising inflation at the beginning of the year and instability of the shilling, the monetary authorities adjusted the Central Bank Rate (CBR) from 8.50 per cent to 10.0 per cent in June and later to 11.5 per cent in July 2015. The weighted average interest rates on commercial banks loans and advances rose by 1.40 percentage points to 17.45 per cent in December 2015 compared to 15.99 per cent in December 2014. The index of stocks traded at the Nairobi Securities Exchange (NSE) declined significantly from a high of 5,346 points in the first quarter of 2015 to 4,040 points in December 2015.
In 2015, the current account balance improved largely due to a decline in the import bill against a substantial growth in export earnings. The decrease in the import bill was mainly due to the fall in the international oil prices. The growth in export earnings was largely driven by improved prices for some commodities which more than offset the effects of the fall in quantities of export. However, the country’s export growth was curtailed by suppressed external demand.
The effects of the fall in fuel prices were experienced across most of the industries, with the main beneficiary being transport and storage where there was a significant decline in costs of production. Other sectors that significantly gained from the lower fuel prices include construction and thermal generation of electricity.