Global Economic Growth To Dip To 3.3 Percent – Genghis Capital

Genghis Capital has reviewed an estimated global economic growth downwards to 3.3 percent for 2019 down from the initial consensus estimate of 3.5 percent.

According to Genghis Capital, the mild growth prospect has heightened the degree of loose monetary posture among the major central banks around the world.

Currently, investing is primarily driven by either fear or greed and analysts expect the second-round effect of US FOMC loose policy action will uplift appetite in attractive equities outside the US by yield-hungry investors.

Kenya’s Real Growth

For the third quarter of 2019, Kenya’s real economic growth is likely to bounce back to 5.8 percent, above the trend of 5.3 percent.

Analysts from Genghis Capital say the economic growth of Kenya for Q3 will be driven by the service sectors.

“We doubt the going concern of the counties in the near-term. What was a tail risk situation at the start of 2Q19 has morphed into a base case; the unresolved Division of Revenue Bill, 2019,” said Genghis in their latest outlook.

The bullish tone on the private sector at the tail end of last quarter will likely spill into 3Q19.

A slow start of the budget cycle will offset this high degree of exuberance. “We believe consumer confidence will hold steady with inflation falling within target levels (2.5 – 7.5 percent),” said Genghis.

On the maize debate that is ongoing, analysts say they do not foresee maize supply shock to either give headline or food inflation a lift in 3Q19.

The CBK Monetary Policy Committee (MPC) reaction function signals a stable CBR at 9.0 percent in 3Q19.

Investors say they expect the local currency to be at 102.5 – 103.5 levels in 3Q19.

At the macro level, the reduced big-ticket needs in FY2019/20, increased remittances (5.2 percent y/y to USD 1.45 billion in 1H19) and lower ADNOC Murban crude price will support the local currency.

The maturity of the 2-year bond (FXD1/2017/2Yr) in the current depressed yield environment will likely nudge its refinancing (a 2-year primary bond paper) in the month of August.

“We believe the issuance of longer tenor bonds will remain the baseline scenario although net domestic borrowing target in FY2019/20 (KES 289.2Bn) is higher than FY2018/19 (KES 255.4Bn).”

Investors should expect interbank rates to average 4.0 percent at the end of 3Q19 from the current sub 2.0% levels. In the event a modification of the interest rate cap comes to pass at the tail end of 3Q19, “we expect a normalization at the long end of the yield curve beginning 4Q19.”