NAIROBI, Kenya, May 2 – The weakness in credit growth to the private sector will dampen Kenya’s economic activity.
This is according to the World Bank, in its latest edition of the country’s Economic Update.
The WB report says that as a result of the implementation of the 2016 Banking Amendment Bill which capped bank interest rates at 4 percent, Kenya’s credit growth is hovering at a 13 year low of 4.3 per cent, compared to the 10 year average of about 19 per cent.
“As a consequence, we do not expect credit growth to reach its long-term average in the near term,” reads the report.
It, therefore, anticipates sectors that have traditionally been intensive in the use of bank loans to be hit the hardest.
As such, durable household purchases such as cars and houses, and firms in manufacturing, construction and real estate industries, will restrain domestic demand and Kenya’s growth prospects.
Weak credit growth is not the only factor expected to reduce the country’s economic activity. The expected increase in oil prices will dampen the GDP growth by some 0.35 per cent and increase inflation by 2.5 per cent over 10 quarter periods.
“With global oil prices set to rise on recent agreements between major oil exporters, the positive terms of trade effect that Kenya and several other oil importers have enjoyed will be curtailed.”
The World Bank projects oil prices to reach US$60 per barrel in 2019, which represents a steady increase in prices, so should be able to be absorbed by the Kenyan economy as opposed to the destabilising sharp hike in oil prices that occurred in 2011/2012.