NAIROBI, Kenya June 20-NCBA Group has revised Kenya’s GDP growth projection to 4.9 per cent; a 0.3 percentage point decline from their initial 5.2 per cent forecast in November 2021.
The downgrade reflects the negative spillover effects of the Russia-Ukraine crisis, an uncertain external landscape, tightening local and external credit markets, domestic election jitters, and climate-related concerns, according to the NCBA Group research.
The research also argues that the third quarter will be most challenging due to a combination of election-induced lull and the full effects of the lingering external shocks especially the knock-on effects of the Russia-Ukraine crisis.
The bank, however, is optimistic about prospects for the final quarter, boosted by prospects of a trend reversal in business investments from the much-expected transition dividends.
Rising inflation and interest rates have been a major concern for Kenyans as food and energy costs hit record highs.
According to the report, supply chain shocks will be prolonged by the Russia-Ukraine crisis, whose end is still not in sight, with negative ramifications for the production and distribution of food and energy and consequently, prices.
“Food inflation is expected to remain in double digits this year, owing to long-term disruptions in global food supply networks, domestic weather shocks, high input costs, and growing transportation and value-addition costs,” says NCBA Group Managing Director John Gachora.
Energy prices will continue to rise with the uncertainty around Russia’s output, OPEC+ production decision and the ability of the US and other energy producers to scale up output.
For Kenya, the report argues that the elimination of fuel subsidies will accelerate inflation towards double digits.
The threat of excessive inflation will be exacerbated by a weak shilling, the report adds.
According to the report, NCBA does not foresee any significant post-election disruption owing to Kenya’s demonstrated institutional capability to manage election disputes in a way that limits any disruptions to the economy.
However, the report attributes election anxiety to the ongoing combination of global economic and social challenges.
The report also discusses the shilling’s continued weakness against the dollar, which can be ascribed to the balance of payment shocks from the Russia-Ukraine conflict and capital reversal due to rising global interest rates and a strong US dollar.
“We expect the deteriorating global sovereign credit outlook, along with other highly leveraged and frontier economies, to underpin further capital reversal and diversion away from Kenya in the short term,” said Raphael Agung’, NCBA’s Chief Economist.
“So far, domestic interest rates are still significantly low relative to the premium being demanded by investors.”
