IMF cuts Kenya's GDP growth on external shocks

Domestic shocks in emerging economies in the G20 such as China, Kenya’s single leading source of imports, are increasingly impacting the country's growth.

This is according to International Monetary Fund's (IMF’s) April 2024 world economic outlook report, which attributed the downgrading to 5.0 per cent from 5.5 per cent last year to the shocks.

However, the lender says the growth prospect will rebound in 2025 at a pace of 5.3 per cent.

Other G20 emerging economies whose spills over effects are being projected to impact Kenya’s economic output this year includes Indonesia, Russia and Saudi Arabia.

These are regions Kenya heavily relies on for cooking oil, cereals and petrol imports, respectively.

“Domestic shocks in China can explain as much as 10 per cent of output variation in other emerging markets after three years, and five per cent in advanced economies, while shocks from other the G20 emerging markets account for as much as four per cent of variation in other emerging and advanced economies,” IMF says.

China’s spillover effects could be as a result of the impact felt by Chinese shipping companies and exporters, on the back of added time and cost re-routing their vessels away from the Red Sea and around South Africa's Cape of Good Hope.

The re-routing has caused a delay in delivery time of around 10 days and lead to soaring freight rates.

Red Sea attacks on vessels by the Houthi rebels began in November last year, with the group committing to escalate the attacks until their demand of ceasefire in Gaza strip is met.

Since the first attack in November last year, data shows the numbers have risen to about 68 as of March 12, impacting inter-trade between countries.

Experts have since warned that the continued attacks on cargo vessels could likely dent the ease in the cost of living in import relying countries such as Kenya, with analysts predicting an increase in fuel prices.

It is on this reason also that the international lender sees the potential negation in economic output this year, spanning from the output losses witnessed last year on high cost of living.

In sub-Saharan Africa, IMF projects the GDP growth to rise from an estimated 3.4 per cent in 2023 to 3.8 per cent in 2024 and 4.0 per cent in 2025, as the negative effects of earlier weather shocks subside and supply issues gradually improve.

The forecast is unchanged for 2024 from the January 2024 update.

On the other hand, global growth estimated at 3.2 per cent in 2023, is projected to continue at the same pace in 2024 and 2025.

The forecast for 2024 is revised up by 0.1-percentage point from the January 2024 update, and by 0.3 percentage point from the October 2023 projection.

“Global headline inflation is expected to fall from an annual average of 6.8 per cent in 2023 to 5.9 per cent in 2024 and 4.5 per cent in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies,” IMF says.