High tea, coffee prices offer hope for Kenya’s recovery

Though demand for these commodities is expected to rise only marginally, a severe drought and more recently heavy flooding in key rice producing states such as China, India and Thailand has significantly cut back on the output piling upward pressure on prices.

A recent rallying in coffee prices is however expected to help Kenya smoothen out part of the new cost burden in the commodities market.

Coffee ‘C’ future is currently trading at higher than January prices and acute supply shortage in the tea markets has caused a price rally that has yielded record bonuses for farmers this year.

The US, the world’s largest economy, grew at the rate of 3.5 per cent in the third quarter – emerging from a 12-month recession that began late last year.

Analysts are still not convinced that the US economy has gained any traction (entered a sustained growth path) and therefore cannot be relied upon to offer the necessary impetus to the global economy.

Economist Nouriel Roubini, who became prominent for predicting the global credit crisis, has recently argued that even with the initial signs of growth, the US economy would remain weak and vulnerable to high commodity prices as well as high interest rates.

Mr Roubini reckons that the US economy still risks a “double-dip” recession -- a situation in which an economy slightly expands only to begin declining again.

“I am uncertain of the US economy’s ability to gain real traction. The risks of a double dip remain once stimulus spending ebbs,” said Mr Khan.

In a double-dip recession, a downturn technically comes to an end and is followed by a temporary session of growth that only gives way to another period of economic decline.

The US economy went through such a trend nearly 30 years ago as it came out of a shallow dip in early 1980 only to go into a serious decline that lasted for another one and a half years.

The US government has pumped a $787 billion stimulus into its economy that most economists say explains the current growth in output.

Analysts have however warned that a decline in the stimulus spending could see the economy fall back into a recession.

Mr Khan said that although Kenya’s and sub-Saharan Africa’s stock markets could return to a recovery mode by mid next year, he does not expect the US economy to play a role in it.

Besides, Mr Khan said that Kenyan flowers, which are mainly exported to Europe, will lag in terms of prices.

“Flowers are a luxury and – like Botswana to a degree with their diamonds – will lag and be a laggard. Tea prices I believe will remain in a higher price structure for the foreseeable future and help offset flowers.”