Geopolitical tensions, rising
global commodity prices and international trade disruptions pose
challenges to Kenya’s economy
in 2025, according to the latest
Absa Kenya Economic Overview.
These coupled with inflation
trends and monetary policy shifts
in advanced economies, have
been highlighted as key risks to
watch out for by businesses in
the country.
Absa Bank senior
economist Phumelele Mbiyo says
that despite the projection of a
stronger shilling, other global
factors beyond Kenya’s control
will have to be monitored closely.
“The Kenya shilling is projected
to remain stable, supported by robust international financial
inflows that have strengthened
foreign exchange reserves to
near-record levels,” said Mbiyo.
“The country’s access to international financing, including
foreign portfolio inflows to the
local bond market, multilateral
loans from institutions such as
the World Bank and the International Monetary Fund, bilateral
loans, and the Eurobond market,
has helped maintain investor
confidence and mitigate volatility
in the forex market.”
The outlook projects that
Kenya’s GDP will grow at 4.9
percent in 2025. A sectorial shift
from agriculture to construction
and financial services is expected
to drive this, while investment spending remains a minimal driver of economic expansion.
“The construction sector had
stagnated after peaking in 2022.
The sector is, however, now picking up and has shown recovery
over the last few months,” added
Mbiyo.
Absa says that net investment, which includes money
spent on new buildings, equipment, and stock while excluding
the loss in value of old assets, will
still depend on money coming in
from other countries.
Inflation is forecasted to average 4.5 percent in 2025, with
core inflation remaining stable
at around two percent since July
2024.
Food inflation remains a
significant upside risk, particularly in the first quarter, when the La Niña phenomenon is expected to
be at its most intense.
The economist says that while
food and non-alcoholic beverage prices have increased at an
annualized pace of 12 per cent
over the three months leading to
January, macroeconomic imbalances are not yet evident.
