BLEAK FUTURE

Cytonn paints gloomy picture of global, Kenya economy

The disruption of the global supply chain is likely to cause input shortages causing most manufacturing plants and retailers to suspend operations.

In Summary
  • Kenya to have a glimpse picture of coronavirus impact on the economy   next Monday.
  • NASI index at NSE has dropped 14.9 points since March 1 from 148.6 to the current 133.7 points, signaling a massive 10.02 per cent drop in two weeks.

The Organisation of Economic Cooperation and Development (OECD) projects the world economy to grow 2.4 per cent from an estimated 2.9 percent on negative effects of coronavirus.

This, it says will be the slowest pace since 2009, during the 2008/9 financial crises.

The disruption of the global supply chain is likely to cause input shortages causing most manufacturing plants and retailers to suspend operations.

 
 

The demand for oil has also slowed down since the outbreak of the virus with major manufacturing hubs such as China and the US either shutting down or slowing down causing the oil prices to drop.

OECD’s projection on the impact of coronavirus on the global economy is the first of the kind, with other international bodies like the World Bank and the International Monitory Fund (IMF) expected to issue estimates in April.

Kenya, which has since recorded three positive cases of Covid-19, will have a picture of the impact of the coronavirus on the economy when the joint team set up by the National Treasury gives its preliminary report next Monday.

National Treasury cabinet secretary Ukur Yatani, told the Star in an interview that the virus is likely to slow this year’s growth projected at six per cent and push up the cost of living.

A Cytonn report looking into the impact of the virus on Kenyan economy issued yesterday illustrates a glaring picture, with the Nairobi Securities Exchange (NSE), the shilling and general business activities nose-diving.

High-risk sectors include tourism, agriculture, manufacturing and health, all of them vital to Kenya’s economy.

According to the report, the Nairobi All Share Index (NASI) has shed 20.7 per cent year- to date, among the top five biggest drops compared to other stock exchanges globally.

 

The Financial Times Stock Exchange 100 Index commonly referred to as the FTSE 100 Index at the London Stock Exchange has the biggest drop of 34 per cent followed by FTSE EURO 300 at 28.8 per cent.

 

Others are Nikkei 225 of the Tokyo Stock Exchange that has slumped 25.7 per cent and The MSCI World Index, which captures large and mid-cap representation across 23 Developed Markets (DM) countries at 23.7 per cent.

Cytonn’s report shows that the NASI index at NSE has dropped 14.9 points since March 1 from 148.6 to the current 133.7 points, signaling a massive 10.02 per cent drop in two weeks.

Share prices of most counters at the Nairobi bourse have shrunk by huge margins, with that of Bamburi Cement dropping by 37.5 per cent to the current price of Sh50.

Other counters that have reported a significant drop in share value include that of Safaricom Plc which has shed 22.7 per cent, Equity Bank 21.7 per cent, KCB Group 21 per cent and British American Tobacco (BAT) 19.7 per cent.

Although the virus did not have a negative impact on local bonds, Eurobond yields increased significantly this week, an indication that investors are now attaching a higher risk premium on the country due to the anticipation of slower economic growth attributable to the locust invasion, coupled with the confirmation of coronavirus infection within Kenya’s borders. 

According to Reuters, the yield on the 10-year Eurobond issued in June 2014 increased by 2.7 per cent to 7.2 per cent, from 4.5 per cent recorded the previous week.

Yields on the 10-year and 30-year Eurobonds issued in 2018, increased by 2.6 per cent and 1.2 per cent to 8.3 per cent and 8.4 per cent, respectively, from 5.7 per cent and 7.2 per cent recorded previous week.

Yields on the 7-year and 12-year Eurobonds issued in 2019 on other hand increased by 1.2 per cent and 2.8 per cent, to 6.6 per cent and 9.3per cent, respectively, from 5.4 per cent and 6.5 per cent recorded the previous week.

The shilling, on the other hand, dropped above 103 margins against the US dollar, the lowest level since November last year.

According to a report done by the Kenya Private Sector Alliance (KEPSA), 61 per cent of businesses surveyed reported that the Coronavirus has had a direct negative impact on their businesses.