Should This Be A Red Flag? Kenya’s Growth Downgraded By Multiple Global Firms

Kenya’s growth prospects for 2019 has been downgraded by leading global banks, consultancies and think tanks who have cited slow economic activity, said to be the lowest since the third quarter of  2017.

Some of the key causes of the decreased growth were associated with the dampening impact of prolonged drought in the first quarter of the year which is said to affect food harvests.

The prolonged drought is also said to strain the government spending on emergency intervention to address food shortages in several drought-stricken counties.

FocusEconomics, a Barcelona-based economic forecast, and analysis firm projected GDP growth of 5.6 % in 2019, which is down 0.2 percentage points from last month’s forecast.

“Growth is seen easing this year due to erratic weather conditions which will weigh on agricultural output and, in turn, constrain private consumption growth.

“Delayed rains curbed production and weighed on agro-processing industries, thus leading to a slowdown in the manufacturing sector,” FocusEconomics said in the report.

The firm further said that the interest rate cap will constrain the activity of SMEs as it led to a reduction of the number of loans going to SMEs.

A Central Bank of Kenya (CBK’s) study previously indicated that the number of loans has reduced since the coming into force of the Banking Amendment Act in September 2016 which set the maximum lending rate at no more than 4 percent above the Central Bank base rate.

In 2017, reduced lending to the MSMEs led to a 1.4 percent decline in the growth of GDP in 2017 and shaved off 0.40 percent of the real GDP in 2018.

The International Monetary Fund (IMF) also joined World Bank in downgrading Kenya’s growth,  the BrettonWood Institution projected the country’s economy to expand by 5.8 percent this year, a downward revision from 6.1 percent it had predicted in October last year.

In its report, World Bank revised the country’s Gross Domestic Product (GDP) growth forecast for 2019 from 5.8 percent down to 5.7 percent, it also cited expected underperformance in the agricultural sector due to poor rains.

“These developments have slowed growth forecast for 2019 and for the medium-term relative to our October 2018 update,” the global lender stated.

US largest lender, JPMorgan, also downgraded Kenya’s growth outlook by 0.4 percentage points to 5.6 percent while DuckerFrontier trimmed Kenya’s 2019 GDP forecast by 0.3 percentage points to 5.9 percent

In its June report, Kenya National Bureau of Statistics (KNBS) noted that Gross domestic product (GDP) in the January-March period slowed to 5.6 percent from 6.5 percent a year earlier.

Nonetheless, New York-based brokerage house Citigroup Global Markets, London-headquartered Euromonitor International and Goldman Sachs left their growth forecast unchanged at 5.8 percent.

The poor growth prospects come at a time when the country is grappling with maize shortage which has compelled the government to import maize and flour from neighboring Tanzania.

The Magufuli-led Government will sell Kenya one million tonnes of maize and flour within one year to help curb the perennial food shortage.

Featured Image Courtesy: Daily Nation