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Analysts upbeat over growth of economy

NAIROBI, Kenya, Jan 20 – The Kenyan economy continues to receive positive reviews from analysts with the latest evaluation from the Standard Bank Group projecting that Gross Domestic Product (GDP) will increase to 5.8 percent this year.

In its report titled, \’African Markets Revealed\’, the group forecast growth in real income boosted by low inflation and strong remittance inflow, which would in turn spur domestic consumption.

Improved confidence and strong regional growth prospects are also expected to provide a rich ground for domestic private investment to expand.

"The expansionary budget is likely to give government consumption and investment spending a significant boost. Domestic private investment will probably expand on the back of improved confidence and strong regional growth prospects," the analysts said.

The economy has been on a growth trajectory since 2009 supported by among other factors, the growth in agriculture and manufacturing sectors which had stagnated for a few years.

Backed by improved agricultural production for instance, GDP grew to 6.1 percent in the third quarter of last year up from 5.3 percent in the previous quarter.

This has prompted many financial analysts such as the World Bank to adjust upwards their economic growth prospects. Standard Bank Group revised its growth prospects for 2010 by 1.5 percentage points to 5.3 percent.

"Economic growth in 2010 is likely to have exceeded our previous estimate of 3.8 percent year on year. We now expect growth to have reached 5.3 percent," the firm said.

Although the official results for 2010 are not out yet, many economic and financial experts agree that the growth rate could have surpassed estimates pegged at around 4.5 percent.

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In mid January this year, Economic Secretary Dr Geoffrey Mwau expressed confidence that the economy will have expanded by 5.2 percent in 2010.

This positive outlook is expected to be reflected in the country\’s current account where analysts predict that the deficit will be contained at three percent of GDP. The level of official forex reserves, which stood at $4.1billion, is also likely to reach $4.5billion by year end.

"Stronger growth in the region is likely to increase the demand for transportation services through its effect on trade. Remittances remain a highly important source of foreign exchange, growing by six percent to $624million in the year to Oct 10 (2010)," the report indicated.

However, with public expenditure set to grow by 16 percent to Sh918billion in the 2010/11 budget, it is unlikely that domestic revenue collections to Sh609billion will be realised which might result in a higher fiscal deficit.

The La Niña phenomenon might also result in higher food prices which might push up inflationary pressures, expected to reach 5.3 percent at the end of the first quarter of this year.

"The CBK is therefore not likely to significantly tighten its stance in this period. This follows the more neutral stance that the CBK adopted in the fourth quarter of last year. The level of excess reserves declined in this period, implying that the central bank withdrew some liquidity from domestic markets," the analysts added.

On the equity market front, the rally that has been witnessed at the Nairobi Stock Exchange (NSE) which was one of the best-performing African exchanges in 2010 is expected to continue going forward.

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"This momentum is likely to be maintained as the improved growth outlook offers support to prospective corporate earnings. Kenyan companies are furthermore likely to benefit from a strong performance by the regional economy," the group said pointing to the increasing number of local firms that have set up shop in the neighbouring countries.

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