Positive sentiments on the economy continue

January 27, 2011

, NAIROBI, Kenya, Jan 27 – Fund management company, Pinebridge Investments is projecting that the Kenyan economy will continue to expand, with the growth rate expected to reach nearly six percent this year.

The projection is based on the assumption that economic fundamentals will not be adversely affected by unfavourable weather patterns, which remain a key risk to continued economic expansion.

" We have witnessed a resurgence in key sectors and the build-up of confidence in the economy as the government fast tracks the Vision 2030 blueprint,\’\’ Investment Analyst Dipna Shah said.

The country is also expected to continue attracting Foreign Direct Investment especially if there\’s a quick implementation of the new constitution which the analyst pointed out, would help to reassure investors that Kenya is a safe investment destination.

"Securing these assurances will mitigate capital flight while ensuring that the economic growth momentum that started last year is sustained," Ms Shah added.

However, there are fears that rising food prices and the drought situation might slow the wheels of growth.

Despite effecting a revision of the method used to calculate the inflation in February last year, the cost of living is still substantially influenced by food prices. Hence, inflationary pressures are expected to rise this year despite efforts by the Central Bank of Kenya to maintain sound macroeconomic stability.

"The spectre of inflation looms large in East Africa\’s biggest economy besides other upside risks largely driven by rising commodity prices and higher growth in money supply among others," the fund manager said.

Unfortunately, these pressures will most likely reverse the low interest rates trend, which has been on a decline for close to a year.

"Whereas CBK favours a low interest rate environment and is generally supportive of the high levels of liquidity in the money market, we project that rates could rise in 2011 as a result of future inflation concerns as well as the likelihood of an expanded expenditure budget as the implementation of the new constitution gets underway\’\’, said another Investment Manager David Achungo.

While the rally that has been witnessed in the stock market is expected to continue, the same cannot be said of the local currency which is projected to depreciate on account of increased imports to fuel the growing economy, high oil prices and the ongoing drought in some parts of the country.

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