Kenya's GDP To Grow By 5% In 2021 But Political Noise Is A Key Risk

Kenya’s GDP To Grow By 5% In 2021 But Political Noise Is A Key Risk

By Soko Directory Team / Published January 20, 2021 | 11:48 am

Genghis Capital estimates a baseline real GDP growth rate of 5.0 percent for Kenya in 2021. “The sluggish growth, below pre-COVID-19 trend (5.60 percent), will be weighed down by the impact of the pandemic on the economy.”

According to analysts from Genghis, a positive output gap hinges on successful COVID-19 vaccination in the population that will eliminate the need for containment measures.

However, the current political noise around the country, Genghis warns might hurt the economy this year. “The rhetoric around Building Bridges Initiative (BBI) referendum will snuff out investor sentiment.”

“Unlike the cyclical 5-year elections that are penciled in the Constitution, we flag the politics around BBI poll as a major tail risk,” said the company in their outlook report.

Kenya’s Purchasing Managers Index (PMI) picked momentum in the second half of 2020. This was hardly surprising against the backdrop of easing of the aggressive containment measures introduced in 2Q20.

Nonetheless, the positive sentiment from the private sector signaled by the diffusion index lost steam at the tail end of the year. “We attribute this to the second-round impact of the pandemic containment measures on the economy having a more lag time before fading.”

The latest (3Q20) unemployment at 7.2 percent although an improvement from the prior quarter is yet to fully recover to pre-pandemic levels (2019 average: 5.3 percent).

Anecdotal evidence indicates sluggish labor recovery in sectors that have borne the brunt of the pandemic and current containment measures. This suggests a marked slowdown in private consumption that will weigh down on growth.

According to the report, monthly trade volume has gradually picked steam (KES 198.4Bn in Oct 2020 –vs– 155.9 billion shillings in May 2020) despite the lackluster import growth (-6.3% y/y in 10M20). Exports will come under pressure in the face of renewed aggressive containment measures to curb the second wave of COVID-19 infections in pockets of developed markets.

“We do not anticipate core inflation to edge up markedly due to subdued demand pressure. On the other hand, we expect the recent 14.3 percent increase in the rate of VAT back to the pre-COVID-19 level of 16.0 percent to liftoff headline inflation in the short-term,” said Genghis.

READ: Kenya’s Real Estate To Remain Neutral As 2021 Kicks Off

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