Business information and credit management firm Metropol has slashed the country’s economic growth prospects for the year 2023 to 4.6 per cent, from 4.8 per cent the previous year.
It was still a downgrade from 7.6 per cent in 2021.
However, the firm projects a rebound growth of 5.1 and 5.4 per cent in 2024 and 2025, respectively.
The slow growth is attributed to high-interest rates, constrained credit growth, limited capital formation in the construction and energy sectors, weakening currency and political uncertainties.
"Further increases in interest rates are expected in the third or fourth quarter of this year, which will dampen credit growth to the private sector and slow down capital formation," the firm says.
“Aggressive government borrowing in the domestic market will also add pressure to public sector debt service.”
The current account deficit is projected to widen significantly, from 10 to 15 per cent, due to the steep depreciation of the Kenyan shilling, high oil prices and flat commodity prices, the firm further says.
This is despite the narrowed gap between the country’s imports and exports which form the current account in the first five months this year compared to last year’s.
The space narrowed to 4.8 per cent of GDP in May from 5.1 per cent in April on easing import costs pressure.
Data by the Central Bank of Kenya shows the current account deficit stood at an equivalent $5.326 billion (Sh769.3 billion) in the first five months of the year compared to $5.77 billion (Sh833.4 billion) previously.
This is when import costs eased slightly to Sh2.577 trillion from Sh2.639 trillion a year earlier.
Touching on the buffers for the FX reserves, remittances are expected to increase only marginally, while portfolio flows are expected to decline.
However, the total capital account inflows are still expected to offset the current account deficit, resulting in a small positive balance of payments.
The Kenyan shilling which has been on a losing streak against the US dollar since early 2020, has been projected to continue weakening in the third and fourth quarters this year.
Analysts at Absa Bank last month indicated the shilling could hit a low of 150 by December, despite the slight ease in global economic constraints.
According to Jeff Gable, the head of FICC Research and chief economist for Absa, the local currency was projected sometime last year to continue weakening to a better part this year, on the back of hiked interest rates by global lenders in efforts to curb inflation.
It closed trade at 140.57 yesterday, losing about 41 per cent of its value since early 2020.
