SPECULATION

Looming second wave of Covid-19 to slow economy - experts

Last month, the International Monetary Fund (IMF) revised Kenya's economic growth prospects upwards

In Summary
  • The country is gearing towards a constitutional referendum ahead of 2022 politics therefore there are high political temperatures.
  • The country recorded 724 new Covid-19 cases Monday, the Health Ministry confirming the second wave.
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Economic experts are of of the view that the of the looming second wave of coronavirus and hotting political temperatures in Kenya may reverse economic growth prospects. 

On Monday last week , an avid Twitter economist, Spectator Index on Monday said the two incidences might dim the country's economic recovery.

In a tweet, the economic watch warned that East Africa's biggest economy could record a negative growth if the Building Bridges Initiative (BBI), 2022 politics and the onset of the second wave of Covid-19 are not contained.

 
 
 

The country is gearing towards a constitutional referendum ahead of 2022 politics which is fully supported by the incumbent President, opposition chief Raila Odinga. The two are facing opposition from Deputy President William Ruto.

High political temperatures usually lead to investor flight as the country does not have a stable environment.

However, according to Country Manager for Kenya, International Budget Partnership, Abraham Muriu, it is hard to predict if the current gradual recovery will shift downwards as business activities are still going on in the country.

"The economic activities in the country are still experiencing a notable resumption, with the recent reopening of schools there is some improvement in activity in towns where the school's source goods," said Muriu.

Muriu added that he doesn't expect the second wave of covid-19 to disrupt businesses like the first wave as Kenyans now have some cautious confidence since there is no sign of a visible catastrophe.

While agreeing with Muriu's sentiments, Ben Shikata, a former economist at Gem Capital said the impact of the second wave will only be seen if the lockdown measures are reintroduced.

He however noted that the global and local political heat might negate the positive projection.

"What happens in the US affects the global economy. This factor, combined with the local political heat might have an impact," Shikata said.

On Friday,  economists at NCBA Bank projected Kenya's economy to expand 3.9 per cent in 2021 if the second wave of Covid-19 is less severe.

However, they warned that it may expand at 2.5 per cent if the second wave of the pendemic persists. 

This is a downgrade from the initial baseline projection of a 0.2 per cent expansion in 2020 and markedly slower than the 5.4 per cent growth in 2019.

the recovery of the economy will also depend on how quickly business is able to reopen, how fast a vaccine is found and how fast government revenues pick up, allowing for healthy spending beyond the Big Four.

Meanwhile, the country recorded 724 new Covid-19 cases Monday, pushing the total number of infections to 56,501 with deaths crossing the 1000 mark line. The Health ministry confirming the second wave.

This is likely to erode a projected positive growth for the country's economy after tough five months of the Covid-19 pandemic that saw growth downgraded by various bodies.

Last month, the International Monetary Fund (IMF) revised Kenya's economic growth prospects upwards projecting GDP to expand one percent in the latest World Economic Outlook.

 

It expects the country's GDP growth to expand by 4.7 per cent next year.

This, after the international lender lowered the growth in May to negative one, punched by Covid-19 ruins.

In September, Central Bank of Kenya projected the economy to expand 3.1 per cent on a good rainfall pattern supporting agriculture and relaxation of the coronavirus containment measures in July.

Sectors such as transport and tourism depend largely on the movement of people and have been recording steady improvement in activity but this gain may be reversed if the state takes decisive action to limit rising numbers of infections.

The spike in Covid-19 cases has put President Uhuru in a dilemma on whether or not to reimpose movement restrictions to stem the spread of the disease.

I am faced “with a very difficult time” of deciding what to do following a sharp increase in cases after lifting the tough restrictions in August,” said Uhuru on Sunday.

He is expected to meet with the 47 county chiefs today to review impact of the phased reopening of the economy.