AIG projects 4.3 pc growth

July 3, 2008

, NAIROBI, July 3 – Fund Management Company AIG Investment has revised its economic growth projections for this year from 3 to 4.3 percent.

The company is further predicting a 4 percent growth for the 2nd quarter compared to negative 1.3 percent in the first quarter and subsequently 5 and 6 percent for the third and fourth resulting in an average of 4.3 percent GDP for the year 

AIG Investments Vice President and Senior Investment Manager Peter Wachira said the revision rides on the back of improved political climate and signs of recovery of key sectors such as agriculture, manufacturing, infrastructure development and tourism all of which have renewed hopes for growth.

Speaking during the launch of the quarterly report, Wachira however said the risk remains the ability of the coalition government to hold together and implement Vision 2030 which is expected to yield a globally competitive, fast-growing and diversified economy.

He observed though that the major challenge for the government is therefore to increase development expenditure to support a higher economic growth rate as projected under the blue Print.

Wachira observed that a stable macroeconomic and political framework that would provide a conducive environment for business to thrive was more necessary to guard against any erosion of economic gains.

"Any adverse political events would jeopardize the implementation of the new development blueprint Vision 2030; hence derail the country’s economic take off. Furthermore the short term measures as spelt out in the last budget aimed at addressing the hardships brought about by post election crisis, the needs of the expanded cabinet and the quest to address the inflationary pressures on the economy may not be achieved as envisaged" said Wachira.

AIG Senior Investment Manager and Head of Research Edward Gitahi is confident that despite the current political heat generated by the Grand Regency saga, the economy would still rebound.

The fund managers also observed that inflation would continue to be a dominant theme globally posing great challenges to world central bankers especially with the increasing commodity and crude oil prices.

"The dilemma of central bankers in the world now is to mitigate the effects of the spiraling crude oil and food prices on the economies without dampening growth prospects. The outlook for inflation in Sub-Saharan Africa, Kenya included, remains bleak in an environment of sustained increases in international crude oil and food prices. Worse still here in Kenya is the recent announcement by the government of a 21percent increase in energy tariffs occasioned by supply disruptions and sustained demand," said Wachira.

The recent Central Bureau of statistics monthly report released late last week indicated inflation figures for the month of June having declined.

According to data the country recorded 29.3 percent inflation in June compared to the 31.5 percent recorded in May.

However, month-on-month underlying inflation rate, which excluded food items from the Consumer Price Index increased from 10.5 percent to 11.2 percent during the same period.

The government has been predicting a 4.5 percent GDP growth for the year.

AIG also predicted that interest rates would experience upward pressure in Kenya likely to be fuelled by a financing challenge to the huge budget deficit of Sh127 billion.

The current budget deficit is the largest in Kenya’s history.

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