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Economic outlook for the New Year

BDSLOWECONOMIC (1)

One can confidently predict that the Kenyan economy will perform better than in 2022. PHOTO | POOL

The year 2023 is here with us and the question Kenyans are asking is about the economic outlook of Kenya. Will things be better this year compared to last year?

One can confidently predict that the Kenyan economy will perform better than in 2022.

Two things defined the year 2022, first was the Russia-Ukraine war that led to prices for commodities like food and petroleum sharply rising.

This contributed to the effect of slow global growth due to trade supply chain disruption as well as faster inflation on the entire global economy.

Second, 2022 was the year the world was in a fight with inflation, the highest we have seen in the last 10 years. Inflation was expected to increase across the global economy because of the economic stimulus many countries put in their economy to mitigate the pandemic effects.

READ: Why bulk of Kenyans did not feel the 7.5 percent GDP growth

As economies were recovering, they were also heating and elevated inflation was expected and this derailed economic growth across the entire economy.

The world had to forego economic growth to tame inflation expectations.

The spillover effects on the local economy were reduced export earnings as well as remittances.

The demand for Kenyan exports in the US and European markets shrank and this left the economy vulnerable to exchange rate shocks.

Third, Kenya was heading to a General Election that was a transition, therefore the election was coming with the uncertainty surrounding the peaceful transfer of power, business confidence is dampened and the economy also experiences capital flight.

Fourth, the biggest challenge Kenya faced is also the long drought in arid and semi-arid areas that have seen agriculture production plummet as well as millions facing starvation.

So, looking at the state of the Kenyan economy against all this backdrop, the conclusion is that the Kenyan economy did well with lesser negative effects, a demonstration of the resilience of the economy.

Coming to the year 2023, there is much more optimism about the many challenges the economy faced in 2022.

To start with, the global economy is expected to see increased growth after the waning of elevated inflation.

The US Fed’s monetary tightening to tame inflation is also expected to ease in mid this year, which will have a positive effect on the global economy.

So, the spillover effect is that we should expect exports as well as remittances to increase but will take off mid in the year.

Business confidence should be back to a high after successfully concluding the General Election with a smooth transfer of power.

The bigger challenge is the drought situation in arid and semi-arid places.

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Also, farmers have experienced a shock in their incomes due to the poor performance of rainfall this season.

In conclusion, the first months of the year will have less optimism before we see a better recovery starting mid-year.

The writer is an economist.