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September 22, 2017

Slow credit growth to hurt Kenya’s economy

Slower private sector credit growth and failed rains in the last quarter of 2016 are likely to slow down the pace of economic expansion this year, analysts have said.

This year, national wealth, known as gross domestic product, will expand by 5.4 per cent from a previous estimate of 5.8 per cent, analysts at Stanbic Bank said in their outlook report. The economy is estimated to have expanded by 5.7 per cent last year.

Stanbic yesterday said the downgrade was largely caused by the low private sector credit growth and looming drought.

“Despite heightened concerns around slower credit growth and unfavourable weather conditions, it is unlikely that GDP growth will fall to sub-five per cent levels in 2017.

This is despite the real likelihood that the majestic recovery experienced in the tourism sector in 2016 could be vitiated by election uncertainty,” Stanbic Bank regional economist Jibran Qureishi said during a media briefing in Nairobi.

Chief economist at Mentoria Consulting Ken Gichinga said the drop in private sector credit growth from 19.5 per cent to an estimated 4.8 per cent year-on-year in 2016 the lowest pace of growth since 2008 will undermine economic activities.

“The inability by businesses to have access to traditional credit from banks, sets the stage for a dramatic shift to alternative sources of funding such as Private Equity,” he said in an outlook report yesterday. “Furthermore, an impending highly contested election and drought in certain parts of the country could weigh heavily on growth prospects.”

Kenya’s growth will, however, be the highest in sub-Saharan Africa. Investment firm Cytonn also gave a near similar forecast on Monday signaling growth would be between 5.4 and 5.7 per cent.

Cytonn on Monday projected a growth of between 5.4 and 5.7 per cent, supported by public expenditure on infrastructure, recovery of tourism, and the continued growth of the construction sector.

“GDP growth in 2017 is expected to be slower than 2016 given the expectation of slow growth in the agricultural sector due to the continued drought, which is expected to persist until mid-2017. This is coupled with the heightened political pressure and the low private sector growth which was at 4.6 per cent in October 2016 from a high of 21 per cent in August 2015.”

Kenya’s average GDP growth has historically been lower in election years as firms trade cautiously.

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