The World Bank says economic growth could hit 6.1 per cent by 2020.
The projection is further predicated on the repeal of the one-year-old law that restricts movement of interest rates, and which has constrained small and medium-sized enterprises access to credit.
Recovery of private consumption is expected to occur in the medium term, driven by pocket-friendly food prices unlike last year when drought hit household consumption hard.
Increased private consumption and a normalisation of the weather are expected to lift Kenya’s economic growth to 5.5 per cent this year, the World Bank says in a newly released report.
The World Bank says economic growth could hit 6.1 per cent by 2020 when the potential but unrealised production levels is likely to have been achieved.
“Economic activity is poised to rebound over the medium term. GDP growth is projected to recover to 5.5 per cent in 2018, and steadily rise to 6.1 per cent by 2020 when output gaps in the economy would have closed,” the bank says in the latest edition of its six-month publication, the Kenya Economic Update. The report says that the dissipation of political tension and the strengthening of the global economy are also expected to work in Kenya’s favour.
The projection is further predicated on the repeal of the one-year-old law that restricts movement of interest rates, and which has constrained small and medium-sized enterprises access to credit.
“The baseline [of the projection] assumes that the ongoing discourse to repeal the interest rate cap will be successful in 2018, thereby supporting a robust recovery in private sector credit growth in 2019 and beyond,” the report says.
Private consumption
Recovery of private consumption is expected to occur in the medium term, driven by pocket-friendly food prices unlike last year when drought hit household consumption hard.
“With the ongoing broad-based recovery in the global economy, remittances to the economy is projected to be robust, thereby lending support to household consumption,” the report says.
The bank expects that a repeal of the law capping interest rates should increase consumption because unsecured lending would rise again after stagnating with its coming into force.
“Further, given that unsecured lending to households has been one of the hardest hit borrower segments in the aftermath of the interest rate cap regime, the anticipated repeal or significant modification to the cap is likely to bolster private consumption as more households gain credit,” the report says.
Oil prices
The bank, however, warns that factors such as an increase in oil prices, downsizing of the stimulus and the still weak credit growth to the private sector could slow down growth.
It adds that oil prices could rise by as much as 10 per cent this year compared to last year with the pass-through to local prices serving to constrain domestic household expenditure.
“However, on the downside, with global oil prices expected to continue their steady rebound (about 10 per cent increase in 2018 over 2017 prices) and with the pass-through of these prices dampening household real incomes, this will serve as a drag on private consumption, thereby mitigating the lift from some of the upside factors,” says the report.
Kenya’s economy has in the past year faced multiple challenges, including adverse weather, uncertainty induced by two presidential elections and slow credit expansion.
The World Bank estimates that growth of the gross domestic product (GDP) stood at 4.8 per cent in 2017 – the lowest since 2012.
“Economic activity in Kenya moderated in 2017 on account of multiple headwinds, but a nascent recovery is underway. Economic growth decelerated to a five-year low of an estimated 4.8 per cent in 2017 from 5.8 per cent in 2016,” says the report.
Uneven recovery
It notes that economic headwinds in 2017 adversely impacted manufacturing, but with their easing, the green shoots of a modest recovery are underway, albeit uneven.
“The industrial sector, which accounts for some 19 per cent of GDP, contributed only 0.8 percentage points to GDP growth in 2017 compared to a historical average of 1.2 percentage points on account of the headwinds faced by the economy,” the report says.
The rebound in tourism, strong public investment, and resilient remittance inflows are, however, seen to have partially mitigated some of the headwinds the economy faced in 2017.
“Reflecting the easing of some of the transient headwinds including from improved rains and easing of political tensions following the conclusion of the presidential elections, a nascent rebound in economic activity is beginning to take root in 2018,” the report says.
