Fund managers at Pine Bridge Investments have lowered their growth forecast for Kenya, citing insecurity, weakening shilling, resurgence in inflationary pressure, rising interest rates, increased government spending on recurrent activities and erratic weather patterns.
This comes even as Kenyans warm up for a middle- income status under a revised method of computing Gross Domestic Product (GDP), which would increase the size of the economy by about 20 per cent.
The managers expect the economy to grow by between 4 per cent and 4.5 per cent this year, contrary to their earlier projections of 5.6 per cent. "I think 4 per cent and 4.5 per cent is a more realistic target this year under the current circumstances," the firm's Senior Investment Manager Nicholas Malaki told The Standard in an interview.
"The spending side of the Government is a big issue while insecurity is always a big one because it has the impact of increasing the cost of doing business," he added.
Kenya's economy remains vulnerable to external shocks while existing macro-economic fundamentals on exchange rates, inflation, interest rates and foreign exchange reserves, which had showed some signs of relative stability, now appears to be faltering.
Malaki says headline inflation in the East Africa's biggest economy is expected to hit double digits —10 per cent—by the end of this year while the value of shilling is expected to weaken to as low as between Sh91 and Sh93 against the US dollar in a similar period. The local unit is currently trading at around Sh89 against the dollar, according to Central Bank data.
"The shilling over the medium term will continue weakening. The reality is that the shilling is under a lot of pressure to depreciate due to poor performance of the tourism industry and increased imports of capital expenditures," he said.
