COVID-19

GDP to take a hit from coronavirus disruption - Cytonn

In Summary
  • The virus has see, investors divest from risky assets in the equity market seeing the the Nairobi All Share Index (NASI) drop by 0.5 per cent between March 13 and March 20.
  • The Kenyan Shilling has also experienced a lot of volatility, due to persistent concerns about the impact of covid-19.
CBK Headquarters
CBK Headquarters
Image: FILE

The coronavirus will negatively affect Kenya’s 2020 GDP due to effects such as massive sell-offs in the equities market, a disrupted global supply chain and a drop in the shilling value, according to experts.

The Cytonn 2020 Market Outlook had projected Kenya’s 2020 GDP to grow within the range of 5.6 - 5.8 per cent but has now said the coronavirus could reduce Kenya’s GDP growth to a range of 4.3 to 5.2 per cent depending on the severity of the outbreak and economic implications.

The virus has seen, investors divest from risky assets in the equity market seeing the Nairobi All Share Index (NASI) drop by 0.5 per cent between March 13 and March 20 and 20.1 per cent on a year-to-date basis.

This has resulted in the heightened demand for fixed income instruments as investors seek safe havens.

 
 
 

The global supply chain has also been affected as international flights have been suspended to countries where traders source their goods and raw materials.

This will disrupt the manufacturing sector which will subsequently negatively impact on the  GDP growth.

The Kenyan Shilling has been under pressure due to concerns about the impact of coronavirus spread. It has depreciated by 3.7 per cent against the US dollar, to close at a four and half-year low of Sh105.1 last week.

Yesterday the shilling made a slight gain against the dollar at 106.01 to the dollar at midday compared to 106.51 on Friday same time.

Reuters quoted some traders saying that CBK came into the market to sell the dollars in a bid to salvage the shilling, draining its forex reserves.

Other sources of foreign exchange reserves include tourist receipts, which have also fallen after country-restricted travel to tame the spread of the virus.

 
 

The lockdowns in Europe, which is Kenya’s biggest export markets for flowers, are expected to further reduce the country’s hard currency earnings.

 

As per the Budget Policy Statement, the fiscal deficit for FY2019/20 was estimated at 6.3 per cent of GDP and although the government continues to pursue the fiscal consolidation policy, risks abound from possible reallocation of funds in a bid to contain the spread of the Coronavirus.

This is expected to further widen the fiscal deficit away from the projected decline to 4.9 per cent of GDP in FY 2020/21.

CBK this week announced that it had transferred Sh7.4billion from its General Reserve Fund to the Government Consolidated Fund in support of the fight against Coronavirus.