COVID-19

World Bank predicts global recession which will affect Kenya

Globally supply chains have been disrupted, reducing the availability of intermediate and capital goods

In Summary
  • This will be fueled by the various COVID-19 virus and responses to it such as social distancing measures and countrywide lockdowns are generating a negative supply shock to the global economy.
  • The measures have seen industries shut operations, global production and transport chains disrupted, and consumer demand is suppressed.
World Bank headquarters
World Bank headquarters

The global economy could go into a recession due to COVID-19 shocks and this could spill over to Kenya, according to the World Bank Kenya Economic Update.

This will be fueled by the various measures and responses taken to contain the spread of the COVID-19 virus such as social distancing measures and lockdowns that are generating a negative supply shock to the global economy.

The measures have seen industries shut operations, global production and transport chains disrupted, and consumer demand suppressed.

 

This in turn has affected Kenya’s export demand, tourism receipts and remittance inflows.

Globally supply chains have been disrupted, reducing the availability of intermediate and capital goods, as a result of shutdowns in the source countries, and this has started taking a toll on the country’s economy.

Kenya’s monthly imports, notably from China, contracted sharply in the months of January to March 2020 with suspension of international flights to contain the spread of the virus.

International trade which supports more than 7.4 million small businesses in the country which mainly source goods from the Asian nation, remains low.

Bilateral trade between the two countries is valued at approximately Sh382 billion.

Kenya’s goods exports (horticulture, tea and coffee) are coming under pressure with flower exports already feeling the pinch as workers stare at  jobs losses.

More than 1,000 employees in the flower sector have been sent home as exports remain suppressed.

 

The tourism sector which contributed revenue of Sh163.6 billion to the economy in 2019 is now experiencing nearly zero returns with lockdowns in the various tourist markets.

More than 50 major hotels at the Kenyan coastline have either closed or reduced operations.

The sector set aside Sh500 million to cushion the industry against the effects of Coronavirus, but it seems this might not be enough to cushion the losses.

The expectation of a global recession reflects major negative impacts from the pandemic in both the advanced and emerging markest and developing economies.

Simulations suggest that the COVID-19 shock would be greater than the global financial crisis when global output contracted by 1.7 per cent in 2009.

This unanticipated shock will lead to a major downward revision of the World Bank’s baseline global growth projection for 2020, which prior to the crisis was 2.5 percent.

According to the World Bank, economic policies set by the government should focus on reducing the immediate economic fallout and social pressures associated with social distancing and measures to contain the spread of COVID-19.