FORECAST

NCBA cuts Kenya's growth to 5.2% on increased uncertainities

In November, the bank had projected the country's GDP to expand 5.8 per cent

In Summary
  • Prolonged drought is expected to dampen agriculture output which accounts for 22% of GDP.
  • Kenya is among many countries feeling the economic heat of escalating crisis in Ukraine following Russia's invasion
National Treasury and Planning CAS Nelson Gaichuhie with the NCBA Group Managing Director John Gachora during the launch of NCBA 2020 Economic Outlook Report at Radisson Blu Hotel Nairobi/FILE
National Treasury and Planning CAS Nelson Gaichuhie with the NCBA Group Managing Director John Gachora during the launch of NCBA 2020 Economic Outlook Report at Radisson Blu Hotel Nairobi/FILE

NCBA Bank has further slashed Kenya's economic growth prospects for the year ending June 30 by 60 basis points as consumption and investments slow amid rising costs and uncertainty.

The lender now projects the country's gross domestic product to expand by 5.2 per cent from 5.8 per cent it projected in November. 

We project GDP growth to slow down to 5.2 per cent, slower than Treasury’s six per cent forecast as consumption and investments slow amid rising costs and uncertainty,'' NCBA John Gachora said at the bank's quarterly economic outlook on Monday

last year, the lender had anticipated sectors such as hospitality, services and transport that were the hardest hit by the Covid-19 pandemic to lead the economy in growth as they reap the benefits of the eased restrictions and higher consumer spending

The new growth forecast is a downward revision to the bank’s initial baseline estimate of 5.3 per cent in May 2021 and way below the six percent projected by the National Treasury. 

In December, World Bank projected Kenya's economy to rebound to five per cent, one of the faster recoveries among Sub-Saharan African countries.

Kenya is among many countries feeling the economic heat of escalating crisis in Ukraine following Russia's invasion which has further disrupted the global supply chain.

Even the world's social-economic leaders like the US and the United Kingdom are facing the highest inflation ever. 

U.S. consumer price gains accelerated in February to a fresh 40-year high on rising gasoline, food and housing costs, with inflation poised to rise even further following Russia’s invasion of Ukraine.

In the US for instance, the consumer price index has jumped 7.9 per cent from a year earlier following a 7.5 per cent annual gain in January, pushing inflation to a 40-year-high. 

The annual inflation rate in the UK increased to 6.2 per cent in February of 2022 from 5.5 per cent in January and above market forecasts of 5.9 per cent.

It is the highest inflation rate since March of 1992, as the rising cost of energy and food continues to squeeze the living standards. 

Besides Russia -the Ukraine crisis, Kenya is battling low rainfall that is likely to hurt food production.

NCBA expects that the prolonged drought will not only worsen the food security situation but dampen agriculture output which accounts for 22 per cent of GDP.

Other factors include the rising global oil prices that have pushed pump prices to the highest levels since the 2008 global recession. 

A litre of super petrol is currently trading at Sh134, with the ongoing national shortage pushing it up to Sh200.

However, oil prices dropped by $4 (Sh460) a barrel on Monday, with Brent crude tumbling below $100 (Sh1500) on plans to release record volumes of crude and oil products from strategic stocks and on continuing coronavirus lockdowns in China.

Economists at NCBA had mixed feelings about the country's fiscal plan for 2022/23 read in Parliament by National Treasury CS Ukur Yatani last week. 

The majority praised the moderation in expenditure, terming it a welcome step towards stabilizing deficit and debt – fiscal consolidation.

"Revenue-driven consolidation is possible but faces significant risks in the short term. Additional tax measures to add Sh50billion to the exchequer,'' they said.

They expect public debt to stabilize at around 68 per cent of GDP before beginning to ease from 2023/24.

They added that the character of debt will improve with increased concessional funding and longer tenors. Kenya is expected to spend Sh3.3 trillion in the upcoming financial year.