Kenya’s Real Growth Rate For2023 To Hit 4.2% – Genghis Capital

Soko Directory Team

3 years ago

Genghis Capital forecasts Kenya’s real growth rate for the year 2023 at 4.2%, before a mild recovery to 5.1% in 2024.

According to the analysts, the double contraction on fiscal and monetary policy fronts will result in effective leftward shifts of the economy’s IS and LM curves – shrinking overall output growth.

Slowed output growth prevailed over the first quarter of 2023, with 1Q2023 growth at 5.3%, down from 6.2% over 1Q2022. The Economic Survey (KNBS, 2023) indicated Kenya’s real GDP growth for the year 2022 slowed to 4.8%, down from 7.5% in 2021.

According to the July 2023 World Economic Outlook, the 2023 global growth forecast improved slightly to 3.0%, while the June 2023 Global Economic Prospects projects a 2.1% growth in 2023.

The decline was largely on account of a contraction in the agriculture sector and the lagging performance of the manufacturing sector. Needless to say, the persistent inflationary pressure weighed heavily on consumer spending.

On monetary policy, Genghis says after a year-long hawkish monetary policy campaign, the Central Bank of Kenya remains steadfast in maintaining price stability on both the internal and external front.

The new regime commenced with a 100bps benchmark rate hike at a surprise June 2023 sitting. This lifted the Central Bank Rate (CBR) to 10.5% – the highest level since April 2016.

“We think the CBK is playing catch-up with US Federal Reserve – which had hitherto hiked its benchmark rate by a cumulative 500bps, compared to CBK’s cumulative 250bps. As such, the new regime capitalized on the scope for further tightening to achieve optimal interest differentials – stemming the Kenya shilling volatility in the process. On the domestic price stability front, our view is that while monetary policy is unfortified against food and fuel price shocks, core inflation targeting will prove effective. We also maintain the view that the rising average interbank rates and CBK’s discount window are poised to cause a systemic liquidity squeeze over the medium term.