DOWNGRADED

IMF further cuts Kenya's economic forecast to 5.6%

The world economy is also expected to drop further, so is that of both advanced, emerging and developing nations

In Summary

In September, Kenya’s Finance Ministry forecast the economy would grow by six per cent this year after 6.3 per cent in 2018

Trade wars to eat up to 0.9% of world GDP

CAUTION: IMF wants local banks to tread carefully in regional expansion.
CAUTION: IMF wants local banks to tread carefully in regional expansion.

The International Monetary Fund (IMF) has cut Kenya's 2019/2020 financial year economic growth to 5.6 per cent from the 5.8 per cent figure issued in April, citing global trade wars.

In its Global Economic Outlook released yesterday, IMF said trade wars between China and US and other uncertainties will take away at least 0.9 per cent of the world's gross domestic product (GDP).

The report dubbed 'Global manufacturing downturn, rising trade barriers' paints a gloomy picture of the country's toughening economy characterised by massive layoffs as companies struggle to stay afloat. 

More than 2,000 people have either been rendered jobless or their fate hanging in balance in past three months alone.

 

Food and Agriculture Organisation (FAO) in July projected the country's food production for the year to dip further on unpredictable rainfall pattern.

In September, Kenya’s Finance Ministry forecast the economy would grow by six per cent this year after 6.3 per cent in 2018.

Kenya National Bureau of Statistics September data showed the economy grew by 5.6 per cent in the second quarter of this year, compared to 6.4 per cent in the same period a year earlier.

The global economy is also expected to drop further without sparing advanced, emerging and developing nations.

Global growth is forecast at three per cent for 2019, the lowest  since 2008–09 and a 0.3 percentage point downgrade from the April 2019 World Economic Outlook. The growth is projected to pick up to 3.4 per cent in 2020.

''The weakness in growth is driven by a sharp deterioration in manufacturing activity and global trade, with higher tariffs and prolonged trade policy uncertainty damaging investment and demand for capital goods,'' IMF said.

President Donald Trump of US has in the past one year been placing tariffs and other barriers on good and services from China, forcing the Asian economic power house to hit back.

 

Other global uncertainties slowing growth include Brexit and fluctuation in global oil prices due to US sanctions on Iran and recent attacks on Saudi Arabian oil fields.

Advanced economies continue to slow towards their lower long-term potential with growth downgraded to 1.7 per cent for 2019 compared to 2.3 per cent in 2018 and it is projected to stay at this level in 2020.

Growth in emerging market and developing economies has also been revised down to 3.9 per cent for 2019 compared to 4.5 per cent in 2018 owing in part to trade and domestic policy uncertainties, and to a structural slowdown in China.

To rejuvenate growth, IMF says policy makers must undo the trade barriers put in place with durable agreements, rein in geopolitical tensions, and reduce domestic policy uncertainty.

''Such actions can help boost confidence and reinvigorate investment, manufacturing, and trade,'' IMF said.