The media is awash with news from different sources about a likely economic recession in 2023. According to the IMF, this has been attributed to weakened activity in key economies such as the US, China and Europe.
This, according to IMF, is likely to affect one-third of the world with ripple effects reaching regions that may not experience a recession.
The World Bank has also slashed its 2023 global economy growth outlook to 1.7 percent for 2023 from its earlier projection of three percent.
Central banks across the world were in 2022 battling inflation pressures. This prompted many of them to raise benchmark interest rates in a bid to tame inflation.
The monetary tightening has then contributed to slower economic activity as the high cost of credit slows down uptake while also discouraging some investors from borrowing to expand their investments.
The tight monetary policy has also led to a reduction in discretionary consumption as the general population postpones some purchases that are otherwise financed by credit due to the increased cost of borrowing.
The Kenyan economy bounced back in 2021, recording a GDP growth rate of 7.5 percent. Inflation was, however, a headache to the government in 2022 with the average annual inflation being 9.06 percent, according to the Central Bank of Kenya.
This was above the upper threshold of CBK’s target range, attributed to supply-side constraints occasioned by external shocks, climate-related food, and energy prices.
The economic situation remains fragile owing to various constraints such as the countrywide drought which has affected agricultural activities and overall productivity.
This has led to a rise in the cost of living due to an increase in the price of basic commodities, leaving a large proportion of the vulnerable population at the edge of a precipice.
Additionally, the rising cost of credit has, on the hand, affected individuals and corporate persons alike.
The government has indicated that its Economic Recovery Agenda is anchored in the bottom-up approach.
According to the government, this is geared towards an economic turnaround and inclusive growth, focusing on critical areas that are perceived to have the largest impact and linkages to the economy and the welfare of the citizenry.
The government intends to pay focus on increasing employment opportunities, ensuring a more equitable distribution of income, and enhancing social security.
With increased predictions of a looming global recession, the Government must remain alive to the likely impact of such an eventuality, noting that Kenya is interconnected with the rest of the world.
Proper measures to protect the most vulnerable must be put in place and well-monitored to ensure that they benefit the intended recipients. This can be achieved through timely cash transfers and other social protection programmes.
The government should ensure that it implements all measures that are meant to ease the cost of doing business. This includes the digitalisation of services to reduce human friction that derails services.
Maina is an Associate Director at Ernst & Young (EY). The views expressed herein are not necessarily those of EY.
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