ECONOMIC FORECAST

Kenya's growth rate to regain track – Fitch

The agency said the vaccination drive will allow a further easing of restrictions contributing to an uptick in private consumption growth

In Summary
  • According to a forecast by Fitch Solutions, real GDP growth is expected to accelerate to 5.2 per cent in 2022, largely driven by private consumption.
  • Meanwhile, the agency has retained its forecast that Kenya’s real GDP will expand by 4.4 per cent in 2021, after a mild contraction in 2020.

Kenya's growth is expected to return to trend levels (above 4 per cent) over the next quarters as the Covid-19 vaccine roll-out boosts business activity.

According to a forecast by global rating agency Fitch Solutions, real GDP growth is expected to accelerate to 5.2 per cent in 2022, largely driven by private consumption.

“While this target is unlikely to be attained due to logistical challenges and vaccine hesitancy, we expect the country’s vaccination programme to gather speed in 2022, as developed countries such as the USA and UK continue to donate spare vaccine doses,” said Fitch in its latest forecast

The agency says the vaccination drive will allow a further easing of restrictions – most likely in the second half of 2022 – contributing to a further rise in private consumption growth to 5.3 per cent in 2022.

Fitch, however , forecasts that room for large increases in government consumption and investment will remain limited.

This as the government continues with it's fiscal consolidation efforts as part of a three-year financial programme approved by the IMF in April 2021.

“As a result, we expect moderate growth in government consumption (4.0 per cent) and fixed investment (4.6 per cent) in 2022, meaning that private consumption will be the key driver of stronger GDP growth next year,” said Fitch.

Meanwhile, the agency has retained its forecast that Kenya’s real GDP will expand by 4.4 per cent in 2021, after a mild contraction in 2020.

According to data on rebased national accounts released on September 9, real GDP shrank by 0.3 per cent in 2020, the first annual contraction since 1992, as against Fitch's estimate of 0.1 per cent growth

Fitch notes that the Kenyan economy exited recession in Q420, expanding by a tepid 1.2 per cent year on year(y-o-y ).

“While sectors such as accommodation, transport and ‘other services’ continued to contract, robust growth in the construction (15.7 per cent y-o-y), mining (9.2 per cent), information & communication (7.6 per cent), and agriculture (5.8 per cent) sectors contributed to the economic recovery,” said Fitch.

“We believe that growth will accelerate further over the remainder of 2021, boosted by low-base effects from Q2 21.”

Further, the Covid-19 pandemic is expected to continue posing some headwinds to domestic demand in 2021.

The government tightened lockdown restrictions between late March 2021 and early May during a third wave of infections.

As a result, Kenya’s Purchasing Managers’ Index dipped to a one-year low of 41.5 in April, before recovering to 52.5 in May and remaining above 50.0 since then.

“Given the country’s sluggish vaccine roll-out (only 3.8 per cent of the population has been partly or fully vaccinated as of September 7), we expect restrictions to persist over the remainder of the year, weighing on economic recovery,” said Fitch.

That said, the agency retained its view that lockdown measures will remain looser in 2021 compared to the stringent lockdown in place in Q220, contributing to a moderate recovery in consumer and business activity this year.

It has forecast below-trend private consumption growth of 4.9 per cent in 2021, adding 3.8 percentage points to headline growth.

Horticultural exports, which rose by 33.8 per cent in volume terms in H121, are expected to remain robust over the remainder of the year as external demand strengthens.

However, exports of tea which were down 9.6 per cent y-o-y during January-May 2021, are expected to remain relatively weak due to the base effects of robust growth in 2020.

Tourist arrivals are also forecast to remain low this year, given scant progress on domestic Covid-19 vaccinations.