Kenya overtakes Ethiopia as East Africa's largest economy

Kenya has overtaken Ethiopia as East Africa’s largest economy in terms of nominal gross domestic product (GDP), according to the International Monetary Fund’s October 2026 World Economic Outlook. Kenya’s GDP reached $135.92 billion in 2025, surpassing Ethiopia’s $126.35 billion.

The shift is primarily attributed to currency fluctuations rather than a decline in domestic production. In July 2024, Ethiopia implemented a market-determined exchange-rate system as part of a $3.4 billion IMF-supported program, causing the birr to depreciate significantly against the US dollar. This adjustment corrected a previous overvaluation of the currency, which had artificially inflated Ethiopia’s dollar-denominated GDP.

In contrast, Kenya’s economy benefited from a relatively stable shilling, helping it reclaim the regional lead and become the seventh-largest economy in Africa. Beyond currency issues, Ethiopia faces additional economic headwinds from renewed security concerns and fighting between federal forces and Tigrayan rebels, which may impact investor confidence and long-term infrastructure projects.