Economy

Global economists cut Kenya’s growth on war, debt costs


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The National Treasury building in Nairobi. PHOTO | SALATON NJAU | NMG

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Summary

  • Global economists have further trimmed Kenya’s growth outlook for 2022, largely citing reduced expenditure on infrastructure projects amid rising external debt costs.
  • Kenya’s growth will, however, remain relatively robust, growing above projected 3.5 percent for sub-Saharan Africa.

Global economists have further trimmed Kenya’s growth outlook for 2022, largely citing reduced expenditure on infrastructure projects amid rising external debt costs and price pressures from Russian war on Ukraine.

A consensus growth outlook from 14 world-leading banks, consultancies and think tanks shows economic activity will likely expand 5.1 percent this year, a drop of 0.3 percentage points from 5.4 percent at the beginning of the year.

“The outlook is clouded by the country’s reliance on foreign capital for infrastructure and a rise in external debt,” analysts at Barcelona-based FocusEconomics wrote in their April outlook report on Kenya.

The analysts who noted a “markedly softer” growth in private sector activity in January as measured by Stanbic Bank Kenya’s Purchasing Managers Index (PMI) argue that “climbing commodity prices following Russia’s invasion of Ukraine will … limit production” for private firms.

Kenya’s growth will, however, remain relatively robust, growing above projected 3.5 percent for sub-Saharan Africa.

“Economic growth is set to be moderate this year, but remain healthy nonetheless. Household and capital spending should firm as economic conditions normalise,” FocusEconomics, which compiled the outlook report between March 15 and 20, wrote.

“Tighter financial conditions (difficulties in accessing credit) will, however, drag on activity somewhat.”

The report shows Switzerland-based Julius Baer has cut Kenya’s growth to 4.1 from 5.5 percent, Oxford Economics (4.1 from 4.3 percent), American investment banker Goldman Sachs (4.8 from 5.3 percent) and Fitch Solutions (4.8 from 5.0 percent).

Others are US-owned Moody’s Analytics (6.2 percent from 6.3 percent), JPMorgan (6.2 from 6.3 percent) and New York-based brokerage house Citigroup Global Markets (5.0 from 5.1 percent).

On the other hand, economists at Standard Chartered have kept Kenya’s growth projection steady at 4.8 percent, joining London-headquartered Euromonitor International’s counterparts (5.3 percent), UK’s HSBC (5.0 percent) and Washington-headquartered consultancy FrontierView (4.9 percent).

Others whose outlook has not changed are UK’s Capital Economics (6.5 percent) and Fitch Ratings (5.0 percent) and Economist Intelligence Unit (4.5 percent).

Kenya’s real GDP — a measure of economic output adjusted to inflation — has a history of slowing down during election years when firms put investment decisions on hold pending return to normalcy in political landscape.

During last election in 2017, the economic growth slowed to 3.82 percent from 4.21 percent the year before, while in 2013 it decelerated to 3.80 percent from 4.57 percent, according to GDP figures which have been revised following last year’s rebasing of the economy.

The aftermath of the deadly December 2007 presidential sunk growth to 0.23 percent in 2008 from 6.85 percent, while in 2002 it slowed to 0.5 percent from 3.78 percent the year before.

The same trend was witnessed in 1997 when growth dropped to 0.48 from 4.15 percent, and in 1992 when it contracted to negative 0.8 percent from 1.44 percent on the onset of multiparty elections.

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