In the recently released Kenya Economic Update, the World Bank reported that Kenya’s Gross Domestic Product growth rate will shrink to 1.5 percent. In this podcast, our resident economist, Prince Muraguri, has constructed a summary of the Kenya Economic Update and discussed some of its key highlights:
Overall Economic Growth
- Global economy 2020 growth rate: -3.0%
- Sub-Saharan Africa (SSA) 2020 growth rate: -2.1%
- East African Community (EAC) 2020 growth rate: 2.9%
- Kenyan economy 2020 growth rate: 1.5%
- The low growth rate in the Kenyan economy is underpinned on COVID-19-related supply side and demand side shocks that are taking place in both the local economy as well as externally.
Sectoral Analysis
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- Services Industry – The service industry has slowed down outstandingly due to decreased interactions among economic agents, since most people are now staying at home.
- Manufacturing Industry – Data from the Stanbic Bank PMI Index indicates that the manufacturing sector has slowed down to sub-50 levels comparable to those experienced in 2017 after the election cycles.
Public Finances
- Fiscal deficit is expected to widen to 7.8% in FY19/20 (from pre-COVID target of 6.3%).
- Debt to GDP ratio has increased to 63.2% in FY19/20 (from 62.1% in FY18/19).
Macroeconomic Analysis
- Overall inflation picked up but still within target.
- With low inflation and a negative output gap, the MPC has lowered the CBR in its three consecutive meetings.
- Credit to private sector is still weak but has started to pick to 7.7% in Feb,2020.
External Accounts
- The current account deficit is expected to narrow from 4.6 percent of GDP in 2019 to about 4.5 percent in 2020.
- External financing needs have increased, because access to the global international markets is effectively shut while the crisis persists.
Given the uncertainty regarding the COVID-19 pandemic, most of the figures provided in the report may change depending on how quickly the situation is brought under containment.
In the next episode, Prince Muraguri will discuss some of the policy response options that were provided in the Kenya Economic Update.
