Slow recovery overseas to hurt Kenya’s growth

Kenya’s economic growth will be more sluggish than in the last five years because of the slow recovery of its main export markets in Europe and US.

Besides low demands in commodity markets, there will be lower consumption levels brought about by an impoverished population, limited international financing and the end of the stimulus programmes in many developed and developing countries.

Kenya is not projected to recover to the growth of year 2005 until after two years with expectation that gross domestic product will be 3.7 per cent in this year and 4.8 per cent in 2011, according to World Bank’s Global Economic Prospects 2010.

The projected growth for next year is closer to the 2004 growth of 4.3 per cent, which rose to 5.9 per cent in 2005 and a high of 7.1 per cent in 2007.

The report says Africa will experience on average a slowdown in the next five years compared to the growth of the past five years as a result of the after-effects of the global economic crisis.

Africa will be slowed down by the failure of commodity prices to recover to their pre-crisis levels this year or the next although they will be higher than in 2009.

A third factor is the drop in stimulus programmes later this year by the developed countries which have helped in arresting the most sinister effects of the crisis and created the stage for recovery – however fragile.

A fourth factor dampening growth will be more expensive finance because financiers will be more risk-averse in the next five to 10 years as regulators tighten rules and lending practices become more conservative.

In fact, for developing countries as a group, Global Economic Prospects 2010 estimates that the average growth rate will be 0.2 to 0.7 per cent lower than the average for the last five years on account of financing alone.

Lead author of the report Andrew Burns said during a breakfast meeting with journalists on Thursday.

“As international financial conditions tighten, firms in developing countries will face higher borrowing costs, lower levels of credit, and reduced international capital flows. As a result, over the next five to seven years, trend growth rates in developing countries may be 0.2 to 0.7 per cent lower than they would have been had finance remained as abundant and inexpensive as in the boom period (2003-07).”

The report said that lower borrowing costs caused both international capital flows and domestic bank lending to expand which contributed to a 30 per cent increase in investment rates in developing countries.

Key markets

“The resulting rapid expansion of the capital stock explained more than half of the 1.5 percentage point increase in the rate of growth of potential output among developing countries.”