Cytonn forecasts 6pc growth, spurred by pre-poll projects

Cytonn Investments forecasts the economy will grow by up to six per cent this year riding on implementation of infrastructure projects as national and county governments seek to impress the electorate in a pre-election year.

The investment firm expects main focus to be on the Jubilee manifesto.

“We expect 2016 GDP growth to be between 5.5 per cent and six per cent supported by the government stepping up infrastructure developments as a “campaign move,” said Cytonn investment manager Maurice Oduor.

Other sectors to drive the economy include real estate, wider electricity supply and revival of the tourism sector on the back of improved security, business travellers and local tourists.

Corporate earnings will grow by between 7.5 per cent and 10 per cent which is low compared to previous levels, said Cytonn. Earnings will be affected by high interest rates, depreciating shilling, slowdown in credit uptake and inflationary pressures.

Cytonn expects inflation to remain above Central Bank’s upper limit of 7.5 per cent but within the single digit range.

Inflation will be driven by higher food prices arising from drought that usually follows El Niño weather. The shilling will also be under pressure from a strengthening US dollar.

The Central Bank of Kenya will not respond to the challenges with higher interest rates instead likely to hold the current rates in fear of triggering another money markets upheaval, said Cytonn. “We don’t see any rate increases by CBK during the year given the adverse effect it may have on the economy,” said Cytonn.

Central Bank’s Monetary Policy Committee will be holding its first meeting of the year, which will spell out the regulators expectations in two weeks’ time.

Cytonn growth prediction is higher than World Bank’s 5.7 per cent. The investment firm had predicted a five per cent growth lower than the 5.4 per cent expected to have been achieved end of last year.

READ: World Bank warns of weak growth in emerging markets like Kenya

ALSO READ: IMF cuts growth forecast to 5.6pc on low spending

Cytonn said it would reduce its target estimates if the government borrowed heavily from the local market resulting in interest rate hikes.

The Treasury has been urged to be creative in financing of the budget amidst low tax revenues and limited borrowing options.

Mr Oduor said international debt may be a difficult nut to crack this year given the negative publicity around the debut Eurobond and a change of market conditions which have seen its yields rise to above nine per cent.