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Kenya’s economic growth projected to drop below 5 percent

Kenya’s economic growth projected to drop below 5 percent owing to inflationary pressure and rising borrowing costs.

Due to protracted dry conditions, ongoing inflationary pressure, and rising borrowing costs, the expansion of Kenya’s economic activity is predicted to fall below five percent this year, indicating a bleak job future for the country’s rapidly developing talented youth.

Gross domestic product (GDP) is expected to rise by an average of 4.8 percent in President William Ruto’s first full year in office, down from the predicted 5.3 percent expansion in 2017. 

The prediction comes from 16 of the world’s top banks, consultancies, and think tanks.

“GDP growth is seen easing in 2023 due to an ongoing drought, elevated inflation, and higher interest rates,” analysts at Barcelona-based FocusEconomics, which compiled the growth forecasts from the 16 institutions, wrote in the report.

“Downside risks to the outlook include a ballooning public debt, further interest rate rises, and additional unfavourable weather events.”

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According to the most recent Kenya National Bureau of Statistics data, Kenya’s GDP, a measure of economic output adjusted for inflation, averaged 5.6 percent in the first three quarters of last year, a decrease from 7.7 percent in the same period the year before.

This was mostly caused by a protracted drought, high input costs that reduced agricultural production, and rising prices for food and fuel as a result of global supply chain disruptions that were made worse by Russia’s violent invasion of Ukraine.

Global economists see the downside risks to growth persisting into this year, hurting labor-intensive sectors like agriculture and manufacturing in an economy struggling to create decent jobs for her growing graduate youth.

The forecast mirrors findings of the monthly Stanbic Bank Kenya’s Purchasing Managers Index (PMI) — based on feedback from about 400 corporate managers— which suggested that 89 percent of firms surveyed do not see an expansion in business activity this year.

Economists at JPMorgan, Standard Chartered and London-based Economist Intelligence Unit have, on the other hand, forecast a five percent growth for 2023.

Capital Economics of the UK has projected the lowest growth at 3.0 percent, followed by HSBC (3.9 percent), Oxford Economics (4.0 percent), Switzerland-based Julius Baer (4.1 percent), Moody’s Analytics (4.4 percent), Nigeria’s Vetiva (4.5 percent), Euromonitor International (4.8 percent) and Goldman Sachs (4.9 percent).

The downbeat view on Kenya’s economic growth prospects comes at a time President William Ruto’s administration, like the majority of peers in sub-Saharan Africa, is battling external headwinds like high oil prices and tight financial markets which have made borrowing abroad expensive since last year.

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