World Bank: Kenya growth rate to beat glum global forecast

The global economy faces a turbulent twelve months according to the World Bank, which lowered its growth forecasts for the world and sub-Saharan Africa in a report published last week.

The Washington DC-based Bank has projected that the global economy will expand by 3 per cent this year, compared to an estimated 2.6 per cent in 2014, in its biannual Global Economic Prospects report. Last June, it had forecast a 3.5 per cent growth rate for 2015.

Single engine

The bank says the world economy could not rely solely on the United States, which has a projected growth rate of 3.2 per cent in 2015. The European and Japanese economies are forecast to grow by little more than 1 per cent, while Russia, whose rouble currency has tanked by 50 per cent against the dollar over the past three months, is set to see its economy contract by more than 2 per cent.

“The global economy is running on a single engine ... the American one,” World Bank Chief Economist Kaushik Basu told reporters at a press conference last week. “This does not make for a rosy outlook for the world.”

The bank also revised down its forecasts for sub-Saharan Africa from 5.1 per cent to 4.6 per cent. The region’s economies expanded by 4.5 per cent in 2014, compared to 4.2 per cent in 2013.

Despite the uncertain outlook across the world, the Kenyan economy should grow by 6 per cent in 2015, according to the report.

This is higher than the regional average but slightly lower than neighbours Uganda, Tanzania and Rwanda, who are set to post growth rates of 6.5 per cent, 7.2 per cent and 6.5 per cent, respectively.

Kenya will be “boosted by higher public investment and the recovery of agriculture and tourism,” the report states.

The number of low income countries has almost halved from 65 in 2001 to 34 in 2014, a factor which Franziska Ohnsorge, the main author of the economic prospects report, attributed to a number of countries discovering commodities in their territories.

Main beneficiaries

Dr Basu added that there were “silver linings behind the clouds”, arguing that lower oil prices would create a “window of opportunity for oil-importing countries”.

The immediate impact of lower crude prices will be a 0.1 percentage point boost to the global outlook this year, the World Bank claims.

The bank expects oil-importing Kenya to be one of the main beneficiaries from a plunge in oil prices that has seen the price of brent crude fall from $105 (Sh9,600) last June to $48.48 (Sh4,400) last Friday.

Lower oil and energy prices should boost consumer spending in the Kenyan economy without putting too much pressure on inflation.

However, the bank warns that a prolonged period of low prices could hinder the prospecting plans of Kenya and Uganda — both of whom are in the process of accessing potentially large new oil reserves — by making it less attractive to foreign investors to bid for drilling contracts. (See related story above)

The bank said it expects oil prices to remain low until 2017.

It also warned that ongoing conflicts in South Sudan and the Central Africa Republic, could “deteriorate further with harmful regional spillovers”.

Meanwhile, the report calls for East African governments to increase their investment in infrastructure projects while making sure that current account deficits do not grow much larger.

The report notes that alongside an “urgent need across the region for structural reforms to increase potential output growth, an acute infrastructure deficit is evident, especially in energy and roads.”

Kenya’s current account deficit stands at 7.4 per cent, although the World Bank expects this to fall to 6.7 per cent by the end of 2015.

“Fiscal balances are really large in some countries in the region,” Ms Ohnsorge told Business Beat, listing Kenya, Mozambique and Tanzania as countries where infrastructure deficits should be tackled “not only with a lot of money, but also more efficiency”.

bizbeat@standardmedia.co.ke