NAIROBI, Kenya, Apr 28 – Financial analysts have projected that 2010 will be the base year that will help determine whether the Kenyan economy is back on an upward trajectory.
Edward Gitahi, the Senior Investment Manager at PineBridge Investments East Africa (formally known as AIG Investments) said although the economy has begun showing signs of recovery, it has not gathered enough impetus to drive sustainable growth.
“We are not out of the woods yet because we are coming from a low base of 2008/2009 so we have not yet gathered the momentum that we lost at the end of 2007. I think this is the base year for more sustainable and future growth,” he said.
The Kenyan economy has taken a severe beating since 2008 due to the negative effects of the global financial crisis, post election chaos and adverse weather conditions which saw it grind to a near halt. In 2008, it recorded a meager 1.7 percent down from the 7.1 percent registered in 2007. It improved slightly in 2009 and is estimated to have expanded by 2.5 percent.
At a press briefing on Wednesday morning, the firm however forecasted a positive outlook of the economy which is expected to record a 4.5 percent growth this year driven mainly by a rebound of the agriculture and manufacturing sectors.
“We expect the agriculture sector’s growth to accelerate to between five and 10 percent so that should have a major impact on the overall GDP (Gross Domestic Product) growth numbers. But we also expect other sectors such as construction and manufacturing to exhibit robust growth,” the analyst added.
There’s also a favourable view of 2011 with the economy anticipated to grow at between 5.5 percent and six percent as the country begins to reap benefits from the heavy infrastructure spending and initiatives such as the stimulus programs.
In the meantime and despite an anticipated hike in global oil prices that could trigger a surge in inflation figures, Mr Gitahi added that they expect it to be sustained at around five percent this year. The single digit figure stems from the switch to the use of the internationally accepted geometric formula of calculating inflation from the arithmetic method which elevated food and energy prices.
On the other hand, interest rates are likely to continue on their downward trend but at a slower pace. Credit growth is likely to increase as the economy continues to expand thus putting more pressure on interest rates.
“We are likely to see interest rates begin to turn gradually in the second half of the year. If the current level of liquidity persists, we think that the money supply growth could be potentially inflationary so we are likely to see a tightening of rates so that the (liquidity) bubble can be cleared out,” he further predicted.
All these factors have contributed to drive the renewed optimism in the market although there is still no telling how the upcoming referendum on the constitution and the expected prosecution of the masterminds of the post election violence will impact the economic recovery.