Kenya’s Economy Grew 4.9% In Q1 Of 2020: Any Hope Ahead?

Kenya’s economy grew by 4.9% in Q1’2020, a decline from the 5.5 percent recorded in Q1’2019, which was due to: a 9.3 percent slowdown in the accommodation and food services sector compared with the growth of 11.0 percent recorded in Q1’2019.

The decline was however mitigated by; the agricultural sector which recorded a slightly faster growth of 4.9 percent, compared to 4.7 percent seen in Q1’2019, and, faster growth in the: mining and quarrying, education, health, and agriculture and forestry sectors which grew by 9.5, 5.3, 5.8 and 4.9 percent in Q1’2020.

Economic growth for Kenya is projected to be significantly lower with the IMF projecting a growth of 1.0 percent while the treasury projected 2.5 percent growth.

“For the first quarter of 2020, the impacts of the virus had not taken a big toll and we saw growth coming in at 4.9 percent a 2 – year low, compared to 5.5% percent recorded in a similar period of review in 2019,” said experts from Cytonn Investments.

The economic prospects have been improving with the Stanbic Bank’s Monthly Purchasing Manager’s Index (PMI), for August coming in at 53.0 after a recording of 54.2 in July 2020, which is higher than the H1’2020 average of 42.2.

Inflation

Inflation rates have remained relatively stable with the quarterly average at 4.3 percent down from 5.0 percent recorded in Q3’2019.

The September inflation rate came in at 4.2 percent. The low inflation rate can be attributed to the low food prices which has more than offset the increases in oil prices over the year.

“We expect inflation to remain stable despite supply-side disruption due to COVID-19 as low demand for commodities compensates for the cost-push inflation. The recent reopening of a majority of the global markets will also address supply chain issues causing import prices to stabilize,” said Cytonn.

The Kenya Shilling

The Kenya Shilling depreciated by 1.9 percent during the quarter bringing the YTD deprecation to 7.1 percent against the US Dollar to close at 108.5 shillings from 101.3 shillings at the end of December 2019.

The depreciation can be attributed to the uncertainty in the global economy and also the decline in dollar inflows as trade is impacted.

The Kenyan shilling will remain under pressure due to the continued uncertainty globally making people prefer holding dollars and other hard currencies.

There is a deteriorating current account position: we saw current account deficit deteriorate by 10.2 percent during Q1’2020, coming in at 110.9 billion shillings, from 100.6 billion shillings in Q1’2019 attributable to;

0 percent decline in the secondary income (transfers recorded in the balance of payments whenever an economy provides or receives goods, services, income, or financial items) balance, to Kshs 124.1 bn, from Kshs 128.0 bn in Q1’2019, and,

A 67.0 percent decline in the services trade balance (the difference between the imports and exports of services) to Kshs 20.4 bn, from Kshs 61.9 bn.

There is an increased demand from merchandise and energy sector importers as they beef up their hard currency positions amid a slowdown in foreign dollar currency inflows.

However, the shilling is expected to have support from the high levels of forex reserves, currently at USD 8.5 bn, above the statutory requirement of maintaining at least 4.0-months of import cover, and the EAC region’s convergence criteria of 4.5-months of import cover.

There is a relatively strong Diaspora remittance increased by 27.9% to USD 274.1 million in August compared to USD 214.3 million in August 2019, despite being 1.0% lower than the USD 277.0 million in July 2020.