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Will we witness economic rebound in fourth quarter?

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The transport sector was one of the worst hit by the Covid-19 pandemic in the second quarter of the year. FILE PHOTO | NMG

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Summary

  • The country's gross domestic product (GDP), the official scorecard for the economy, contracted at a 5.7 percent annualised pace from April to the end of June 2020, according to the Kenya National Bureau of Statistics (KNBS).
  • That compared with 4.9 percent expansion in the first quarter.
  • Accommodation and food services, education, transport and storage posted a significant downturn as expected.
  • Inflation was low before the crisis and could go even lower still.

Kenya’s economy shrank in the second quarter hit by government-instituted measures aimed at containing spread of the Covid-19 scourge.

The country's gross domestic product (GDP), the official scorecard for the economy, contracted at a 5.7 percent annualised pace from April to the end of June 2020, according to the Kenya National Bureau of Statistics (KNBS).

That compared with 4.9 percent expansion in the first quarter.

Accommodation and food services, education, transport and storage posted a significant downturn as expected. Inflation was low before the crisis and could go even lower still.

Inflation rate in quarter two stood at 5.31 percent, down from 5.92 percent in the previous quarter. In the same period, the Kenyan shilling depreciated against most of its major trading currencies compared to the same quarter last year.

Agriculture, forestry and fishing were one of the few bright spots - output grew 6.4 percent in the second quarter from a year earlier.

Easing of the monetary policy stance in the first 2020 quarter seemed to cushion the economy very well - the Central Bank of Kenya (CBK) lowered the Central Bank Rate (CBR) from 7.25 percent in March 2020 to 7 percent in April 2020.

Total domestic credit and credit to the private sector expanded by 11.9 percent and 7.67 percent to Sh3.9 trillion and Sh2.6 trillion respectively in June 2020.

Further, the Stanbic Bank PMI continued its rise to 56.3 in September from 53 in August, pointing to the biggest expansion in private sector activity since April of 2018.

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

In addition, CBK’s September 2020 MPC Market Perceptions Survey showed that, on average, banks and non-bank private firms increased their optimism from 58 and 48 percent in July to 81 and 62 percent, respectively in September.

So the big question is; with the steady and partial re-opening of the economy, will we witness a rebound in quarter four? (Note: the economy is possibly on track to show contraction in the third quarter).

Although it would be naive to think the economy will bounce right back to ‘normal’, it’s my considered view that the economy would at least bounce back into the black. This is largely due to the expected “flattening of the curve”.

Moreover, I believe that favourable weather, improving private sector credit growth, evidence of increased product demand, resumption of international travel and a decline in lay-offs are all the right ingredients to help the economy turn the corner.

839 DEATHS

Why not a strong recovery? Lingering worries about the virus are likely to cause many Kenyans to continue to practice social distancing, an outcome that may harm sectors such as transport, hotels and restaurants.

An estimated 839 Kenyans have already died from the disease (by Monday) — and counting. Increased levels of unemployment, slow payment of suppliers and contractors and credit risk are some of important hindering factors.

And of course, a second shutdown of the economy, localised or national, would mostly push back the recovery.

Mr Mwanyasi is the managing director of Canaan Capital