Kenya GDP to hit below 0.2%, says World Bank

The World Bank, in its latest Kenya Economic Update, April 2020 titled: Turbulent Times for Growth in Kenya – Policy Options during the COVID-19 Pandemic, has warned that the COVID-19 global pandemic poses unprecedented turbulent times for Kenya’s economy, with growth expected at below 0.2% in a worst-case scenario.

The pandemic is expected to further reduce Kenya’s economic growth in 2020 with severe impacts on transport, retail trade, tourism, events, leisure, manufacturing and construction as well as agriculture.

In addition, measures taken to slow down the rate of infection, including home confinement, travel restrictions, the closure of schools and entertainment spots, the suspension of public gatherings and conferences, and a nightly curfew, are expected to affect both production and consumption across the economy.

Social distancing measures can be very successful in delaying the spread of COVID-19, but the World Bank says these measures are nonetheless also very costly to the economy. This cost is aggravated by the presence of a large informal sector, high poverty rate, and unemployed youth population.

While Kenya’s social safety net is still nascent, and targeting of vulnerable households for interventions considerably challenging, urgent action is needed to provide poor households with food, water, and other basic supplies to cope with the crisis.

The World Bank’s GDP growth scenario for 2020 is for a baseline of 1.5 per cent, before rebounding to about 5.6 per cent over the medium term, on assumption that investor confidence will be restored soon after the COVID-19 pandemic is contained. Growth is also predicated on normal weather that should be supportive of agricultural output and that a swift and well-targeted policy response to COVID-19, will support the economy’s resilience.

An adverse scenario of a recession of about -1.0 percent is also presented on assumption of significant supply and demand shocks with feedback stemming from each of these forces. Kenya could experience severe economic shock much worse than in 2008 when it grew by a paltry 0.2%, from 6.9 per cent in 2007) as a result of post-election violence, drought, and the global financial crisis.

The WB notes that Kenya is only at the beginning of a very uncertain path as the COVID-19 pandemic spreads. A more severe global recession due to the virus would undermine Kenya’s export demand, tourism receipts and remittance inflows.

Other risks include poor weather, tougher lockdown and restrictions and large scale community transmission, factors that could severely disrupt economic activity and reduce growth below the baseline.