Traders most optimistic of a better economy in 2018

Traders are the most optimistic of an economic rebound on improved weather and political climate, a new Central Bank of Kenya (CBK) survey shows.

The survey rated the trade sector’s optimism at 6.2 per cent in May, improving from 5.1 per cent in March —mirroring an overall perception by other players such as commercial banks, microfinance banks (MFBs) and non-banking firms.

The survey sought to obtain the expectations of companies on selected economic indicators including growth outlook and the business environment.

The survey sampled lenders, micro-finance institutions and non-banking private sector firms in various sectors including agriculture, mining, manufacturing, electricity, trade, hotels and restaurants, transport, communications, real estate, construction, and insurance and health.

“The higher economic growth was expected to be supported by agriculture due to favourable weather conditions, continuing government spending on infrastructure, focus on the Big Four priority areas, the positive impact of devolution, growth in foreign direct investment, sustained political stability, and its positive effect on business sentiment, and overall stability in the macroeconomic environment” reads part of the survey report.

Respondents, however, pointed out that weak private sector lending due to the interest rate capping, excessive rains that may affect agriculture and game tourism in the short term as well as concerns over the relatively high foreign debt level, may constrain the economic growth in 2018.

Players in the real estate, building and construction registered the second highest optimism rate at 5.9 per cent up from 5.3 per cent in March.

The construction sector has remained buoyant despite shaky economic times with its contribution to the gross domestic product (GDP) hitting an all-time high in the third quarter of 2017, lifted by a raft of mega infrastructure and housing projects.

The output from the sector in the July-September window was Sh99 billion — the highest ever, the Kenya National Bureau of Statistics data shows.

The finance, insurance and manufacturing segment rated their confidence in economic growth at 5.6 per cent, while tourism and agriculture showed the lowest expectation in economic progress, both scoring 5.5 per cent.

The survey attributed the rise in optimism within the banking sector to the expected pick-up in economic activity driven by both government and private sector activities, stable macroeconomic fundamentals and the prospect of interest rate cap review.

Respondents in the banking sector, however, raised concerns over the weak private sector credit growth due to interest rate capping, rising international oil prices and the level of public debt as risks to this robust outlook.

According to World Bank, Kenya’s GDP growth is set to rebound to 5.5 per cent this year compared with an estimated 4.8 per cent in 2017, thanks to better weather and less political risk after last year’s presidential election.

The economy is thought to have expanded at the slowest pace last year since 2012 (when it grew at 4.6 per cent) due to a biting drought that hit farmers, prolonged electioneering that delayed investment decisions and a drop in credit growth to the private sector.

Nevertheless, rising food prices constitute a crisis on the eve of a high-stakes in economic growth. Besides, there has been anxiety about government spending on new public works, including the standard gauge railway that has caused Kenya’s debt to balloon to the Sh5 trillion mark.

Kenya’s private sector activity growth slowed in May on the back of slower increases in output, new orders and employment, a survey report released earlier this month showed.

The Markit Stanbic Bank Kenya Purchasing Managers’ Index for manufacturing and services fell to 55.4 in May from 56.4 in April. Anything above 50 denotes growth while anything below, contraction.

“Slightly easing from April’s survey record, the rate of growth remained strong and above the series average. According to anecdotal evidence, favourable economic conditions and strong underlying demand were the key factors behind the latest expansion,” Markit said.

“Despite softening from April’s 16-month high, the rate of growth remained sharp overall. Panellists attributed new client wins to stronger market demand. Amid reports of stronger demand from international markets, growth in new export orders also remained strong.”

The report said businesses continued to face higher input costs.

The country’s inflation rate rose to 3.95 per cent year-on-year in May from 3.73 per cent the previous month, data from the statistics office shows.