Household spending to fall by half over Covid-19 risk

Spending by Kenyan households and businesses is set to fall by 50 per cent this year due to disruption caused by coronavirus, a new report says.

The report by global firm McKinsey & Company says the reduced spending by consumers will be the biggest loss to Kenya’s Gross Domestic Product (GDP) that might shrink to 1.9 per cent from 5.2 per cent.

This means in a worst-case scenario, Kenya’s GDP growth rate could fall by five per cent, which translates to an output loss of $10 billion (Sh1 trillion). But a partial economic impact will see the GDP reduce by $3 billion (Sh315.6 billion) even after factoring in the recent locust invasion, indicates the report.

GDP is the size of the economy or value of all goods and services churned out by construction companies, farms, factories and offices in the country.

“In two out of four scenarios, Kenya could potentially face a contraction. The biggest impacts in terms of loss to GDP are reductions in household and business spending (40-50 per cent),” said the report dubbed COVID-19: Africa Economic Impact.

Kenya’s GDP growth rate could fall to by five per cent, which translates to a loss of Sh1 trillion, according to the report.

The report presented four scenarios to gauge the impact of Covid-19 to Africa’s economies that could experience a loss of between $90 billion and $200 billion (Sh9.5 trillion and Sh21 trillion) in 2020.

Other big impacts in terms of loss to Kenya’s Gross Domestic Product (GDP) include disruption to supply chain for key inputs in machinery and chemicals (about 30 per cent) and tourism (about 20 per cent). The report, however, notes that Kenya could likely “experience a notable cushion” of $1.5 billion (Sh157.8 billion) from reduced prices on its import bill.

Future economic implications for African countries cited by the report include pressure on interest rates and currency devaluation, rising deficits and increase pressure on debt markets, limited access to hard currency and reduced tax revenues.

The report further said most business, many of which are SMEs, face closures and bankruptcies. “Policies on critical healthcare, infrastructure and strategic reserves of key supplies will all need to be addressed,” said the report.