A new report projects Kenya’s economy will grow at 6.4 per cent in 2016, cementing the World Bank’s overview that the economy would grow at a robust pace next year despite the weakened shilling.
Focus Economic, a global economic consultancy firm however, revised downwards the country’s growth prospects for October, citing continued poor performance of the tourism sector and risks to flower and coffee production due to the expected El Nino rains.
“On a positive note, expansionary fiscal policy, large-scale public infrastructure investment and robust private consumption will likely sustain strong growth. Focus Economics panelists see GDP expanding 5.9 per cent this year, which is down 0.1 percentage points from last month’s forecast,” it said in its October report.
World Bank said last week Kenya’s growth prospects in 2016 would be mainly supported by spending on the standard gauge railway and the Lamu Port, which are expected to boost domestic trade by lowering transportation costs.
According to Focus Economics, growth will also be supported by other large-scale infrastructure investment such as the expansion of the power grid and an agreement with Uganda on the route of a new oil pipeline.
The firm said a prolonged poor performance in tourism has added pressure on the shilling and blocked a recovery in agricultural production, prompting the overall gross domestic product growth to slow in the first quarter.
The tourism sector has been hurt by a series of terrorist attacks in the past two years but the sector is recovering.
“Nevertheless, the composite purchasing managers’ index, which is produced by Markit and CfC Stanbik Bank, pointed to expansionary business conditions from April to August and growth is expected to pick up gradually throughout this year,” it said.
It said lower food prices partly compensated for higher fuel prices and the pass-through effect of a depreciating shilling.
Inflation eased from 6.6 per cent in July to 5.8 per cent in August, according to the Kenya National Bureau of Statistics data.
“Focus Economics consensus forecast panelists foresee inflation averaging 6.4 per cent in 2015 and 6.6 per cent in 2016.”
It said it expects the shilling to end this year at 105 to the dollar and projects the currency to trade at 110.2 in 2016.
“The depreciation of the shilling reflects continued weakness in the country’s important tourism sector, a main source of foreign exchange, over security concerns. Weakness in the agricultural sector of the world’s largest tea exporter adds to pressures on the currency,” it said.