UPDATE

World Bank cuts Kenya's 2021 economic growth to 4.5%

The near-term economic outlook for Kenya, as elsewhere, remains unusually uncertain and contingent on the course of the pandemic

In Summary
  • This is a massive cut compared to the previous projection of 6.8 per cent growth
  • In an adverse scenario involving the realisation of these downside risks, average growth would be lower, at 3.7 per cent in 2021–22.

Kenya's economy is expected to continue to recover and gradually return to growth,with real GDP growth projected to reach 4.5 per cent in 2021 and to be over five per cent on average in 2022-23.

This is a massive cut compared to the previous projection of 6.8 per cent growth, which was to be the fastest  in Africa, and a more ambitious prediction than the government's estimate of 6.4 per cent.  

The 23rd Kenya Economic Update by World Bank launched Wednesday attributes the growth to an upturn in industry supported by reopening of the economy and strong capital spending.

Other factors includes a moderate recovery in services as vaccination rollout steadily progresses, adequate agricultural harvests and sales, helped by rising external demand from the recovering global economy.

On the demand side, private consumption is expected to continue to recover, supported by a pickup in wages and household incomes, and resilient remittances.

Monetary accommodation is likely to continue in the near term, in the absence of inflationary shocks, as is appropriate in the context of a negative output gap having opened up due to the pandemic, and low core inflationary pressures.

The baseline assumes a continued, albeit uneven and for some sectors gradual, normalisation in economic activity, supported by the government’s plan to vaccinate Kenya’s entire adult population by mid-2022.

Even so, Covid-19 related uncertainties and erratic weather condition which is expected to hamper agricultural production will likely derail the growth. 

''The near-term economic outlook for Kenya, as elsewhere, remains unusually uncertain and contingent on the course of the pandemic,'' the World Bank report reads in part.

According to the report,a slower deployment of vaccines due to supply challenges, logistical impediments to domestic distribution, and vaccine hesitancy, could weaken the recovery.

''A slower than anticipated vaccination rollout, fiscal slippages, adverse weather conditions, and a weaker global economic backdrop could all challenge the projected recovery,'' World Bank says. 

In an adverse scenario involving the realisation of these downside risks, average growth would be lower, at 3.7 per cent in 2021–22. On the upside, the pandemic’s economic impacts could fade faster than anticipated, including due to accelerated vaccination. 

The international lender says that policymakers face a major challenge to steer towards a durable recovery whilst achieving the needed fiscal consolidation.

Even so, a demographic dividend can contribute to growth and incomes, but only if Kenya can make more progress to generate jobs and accelerate economic transformation

Further, the World Bank expects Kenya’s current account deficit to widen on the rebounding of domestic demand which is set to fuel imports as firms increase input purchases.

The current account is projected to widen to 5.5 per cent this year from a narrowed 4.8 per cent at the close of 2020.

The lender expects the global economy which rebounded  in the second half of 2020 in most regions after lockdowns were eased amid an unprecedented monetary and fiscal stimulus to edge up in 2021.

It  estimates the World GDP to grow by 5.6 per cent, 1.5 percentage points above the previous forecast. 

Economic activity in sub-Saharan Africa is expected to strengthen, but the pandemic will continue to weigh on growth and exert fiscal pressure.

The region’s output is expected to expand by 2.6 per cent in 2021, up 0.2 percentage points relative to the October 2020 forecast, driven by increased commodity prices and exports, and a recovery in private consumption and investment.