Kenya’s Macroeconomic Fundamentals Expected to Remain Positive – Cytonn Report

Macroeconomic fundamentals in Kenya are expected to remain positive as a result of the improved business environment created through political goodwill and improved security in the country.

According to Cytonn Investments weekly report themed “Kenya Economic Review 2018”, inflation in FY’2018 is expected to experience upward pressure, partly due to the base effect, and the rise in fuel and transport prices with the introduction of 8.0 percent VAT on petroleum products as from September 2018. However, Inflation is expected to average 7.0 percent in 2018, down from 8.0 percent in 2017, and within the government target range of 2.5 percent – 7.5 percent.

The country’s Gross Domestic Product (GDP), adjusted for inflation, has been on the rise in 2018 has expanded by 5.7 percent in Q1’2018 and 6.3 percent in Q2’2018, higher than the 4.8 percent and 4.7 percent growth in similar periods the previous year, respectively.

The improved growth has been against a backdrop of a stable macroeconomic environment which was driven by a recovery in agriculture, which saw the sector recorded a growth of 5.2 percent and 5.6 percent in Q1’2018 and Q2’2018, respectively, due to improved weather conditions.  In terms of sectoral contribution, agriculture remains the highest contributor coming in at 25.5 percent and 23.2 percent in Q1’2018 and Q2’2018, respectively.

Improved business and consumer confidence have also been stated as one of the drivers to the current improved macroeconomic environment, evidenced by the Stanbic Bank’s Monthly Purchasing Managers Index (PMI), which has averaged 54.5 in the 10-months to October 2018, a rise from 46.4 recorded in a similar period in 2017.

The improvement in the business environment has also been facilitated by the improved ease of doing business, which saw Kenya’s rank improved by 19 positions to #61 from #80 as per the World Bank Doing Business Report 2019. 

This was mainly driven by improvements in the protection of minority investors, getting credit and resolving insolvency, and increased output in the real estate, manufacturing, and wholesale & retail trade sectors, which grew by 6.6 percent, 3.1 percent and 7.7 percent.