•The impact of the Covid-19 pandemic was felt more in the second quarter particularly in education, transport and storage, and accommodation and restaurant services.
•The Central Bank of Kenya is however optimistic of a rebound, with leading indicators pointing to a recovery in the second half of 2020.
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The Central Bank of Kenya(CBK) has projected a 1.3 per cent full year economic growth as key sectors slowly pick from low performance in the first half of the year.
This is double the National Treasury's this week prediction of 0.6 per cent, pegged on effects of the Covid-19 pandemic on the economy.
Governor Patrick Njoroge on Friday noted the CBK's projection is however based on full-year analysis, with Treasury having pegged its numbers on the first and second quarter of the year, when real GDP is estimated to have contracted by 0.4 per cent in the first half.
“If you use quarter one and quarter two, then you will have 0.6 per cent,” Njoroge noted.
The adverse impact of the Covid-19 pandemic was felt more in the second quarter mainly on services sector, particularly education, transport and storage, and accommodation and restaurant services.
The contraction was partly offset by strong growth recorded in agriculture.
Nevertheless, CBK which has retained the base lending rate at 7 per cent, has expressed optimism of a rebound, with leading indicators pointing to a recovery in the second half of 2020.
“The resilience in the second half continues to be supported by agriculture, a recovery in manufacturing, exports, and services following the easing of COVID -19 restrictions,” Njoroge, who also chairs the Monetary Policy Committee(MPC), said.
A Survey of hotels and flower firms by the CBK, conducted between November 10-12, showed steady recovery from the closures and scaling down of operations in April and May following the onset of the pandemic.
About 96 per cent of the respondent hotels are however now open, compared to 89 per cent in September, with increased re-engagement of employees. An average bed occupancy of 23 percent was reported.
All responding flower farms indicated that they are now operational, compared to 56 per cent in April and May.
“Employment and export orders for flowers have improved and are now close to pre-Covid-19 levels,” Njoroge has noted.
Respondents also indicated that orders for flower exports over the next four months are strong, with a risk of disruptions from a tightening of Covid-19 containment measures in key markets.
The November 2020 MPC Private Sector Market Perception Survey revealed improved expectations of economic activity in the next two months, and improved optimism on economic prospects for the next twelve months.
“Respondents attributed the improvement to continued normalization of economic conditions with the lifting of Covid-19 restrictions, strong agricultural production, and government focus on infrastructural projects,” the governor said during a post MPC briefing.
Exports of goods have strengthened from the disruptions of Covid-19, CBK said, growing by 2.8 per cent in the period January to October, compared to a similar period in 2019.
Receipts from tea exports rose by 13.2 per cent during this period, largely reflecting increased output.
Horticulture exports have rebounded, reflecting the normalisation of demand in the international market, and the availability of adequate cargo space.
Flower exports have also rebounded, with the volume in the period July to October 2020 having increased by 4.8 per cent compared to a similar period in 2019.
Receipts from services exports however remained subdued, reflecting weaknesses in international travel and transport.
The current account deficit is projected at about 5.1 per cent of GDP in 2020 from 5.8 per cent in 2019.
On the cost of living, inflation remains well anchored with month-on-month overall inflation standing at 4.8 per cent in October compared to 4.2 per cent in September, Njoroge said, and is expected to remain within the target range in the near term, supported by lower food prices and muted demand pressures.
The banking sector remains stable and resilient, the governor also noted, with strong liquidity and capital adequacy ratios.
“The ratio of gross non-performing loans (NPLs) to gross loans remained stable at 13.6 per cent in October and August,” he said.
NPL increases were however noted in the transport and communication, energy and water, tourism, restaurant and hotels and real estate sectors, mainly due to the disruption of businesses.
The increases in NPLs were partially offset by repayments and recoveries in the trade,manufacturing and building and construction sectors.
Meanwhile, the government is in talks with the International Monetary Fund(IMF) for an economic programme that will see Kenya get financial support during the current pandemic, and post- Covid recovery.
“It is an ongoing discussion that we expect to complete,” Njoroge said, adding that it should not be taking long, “there is nothing to wait for.”
The lender in October revised Kenya's economic growth prospects upwards in its series of the World Economic Outlook.
It said Kenya's GDP will expand one per cent (1%) this year, up from negative one per cent projected in June. It expects the country's GDP growth to expand by 4.7 per cent next year.
The World Bank on the other hand has projected Kenya's economy will contract by one per cent in 2020 in the baseline scenario, and by 1.5 per cent in a more adverse scenario.