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Kenya Economic Growth Slowed to 0.5% in First Quarter

Kenya’s economic growth slowed in the first quarter as dry weather reduced farm output and the rising cost of energy imports capped consumer and business spending.

Gross domestic product expanded a seasonally adjusted 0.5 percent from the previous three months, when it grew 2.2 percent, the Nairobi-based Kenya National Bureau of Statistics said in an e-mail today.

“There was significantly lower rainfall than usual and agriculture took a hit,” Fred Moturi, a fixed-income trader with Sterling Investment Bank Ltd., said by phone from Nairobi today. “Higher fuel prices in the first quarter impacted on manufacturing and electricity.”

Kenya is the world’s largest exporter of black tea, with agriculture accounting for almost 25 percent of its economy. Production of tea, the country’s largest foreign-exchange earner, fell 18 percent in the five months through May from the year earlier, the Tea Board of Kenya said on June 27.

The economy grew 4.9 percent in the first quarter from the year-earlier period, compared with 7.2 percent in the previous three months, the statistics bureau said. Agriculture expanded 2.2 percent, while growth in the electricity and water industry slowed to 3.5 percent from 21.2 percent in the previous three months.

Growth Forecast

Dry weather and high energy prices “to a certain extent restrained economic growth,” the bureau said. “Agricultural output, particularly coffee and tea, had their production substantially depressed as a result of the poor rains.”

The government forecast on June 8 that economic growth will slow to 5.3 percent this year from 5.6 percent in 2010 as the rising cost of imported fuel and food limits consumer spending. Inflation accelerated to a more than two-year high of 14.5 percent in June.

The central bank raised its benchmark lending rate at the last two policy meetings, taking it to 6.25 percent in May. The bank said last week it may need to increase rates further to rein in inflation and halt the decline of the shilling, which has slumped about 12 percent against the dollar this year.

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