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Kenya’s economic outlook has darkened significantly, with the Central Bank of Kenya (CBK) revising its growth projections for 2024 down to 5.1 per cent from 5.4 per cent.
CBK Governor Kamau Thugge Wednesday announced the new forecast during a press briefing, highlighting a troubling deceleration across key sectors, including construction, mining, and quarrying. The downward revision reflects the economy’s sluggish performance in the second quarter of the year, primarily due to contractions in key sectors like construction and mining.
“The growth projection for 2024 has been revised to 5.1 per cent from the previous projection of 5.4 per cent, reflecting the growth outcome for the second quarter of 2024 which shows a slowdown in growth,” said Thugge at a virtual press conference.
The forecast reflects a stark shift from the robust growth that characterised previous years, casting a shadow over President William Ruto’s reorganised administration, which has prioritised job creation afresh amid widespread discontent over rising living costs and new taxation.
The economic slowdown threatens to reignite social tensions, particularly among the increasingly restless Generation Z, who have been demanding greater economic opportunities and improved living standards.
Economists also warn that the anticipated slowdown could deepen poverty levels and strain social welfare systems.
The country’s jobless youth population, popularly known as Generation Z, is increasingly demanding economic opportunities and improved living standards.
Failure to address these demands in a slowing economy could exacerbate social discontent and political instability, analysts say. “If the government fails to address these pressing concerns, we could see a resurgence of protests and political instability,” said independent economist Ian Njoroge.
The younger population, a significant demographic in Kenya, has been vocal in its frustrations over slim economic opportunities raising expectations for job creation that the current trajectory appears unable to meet.
Adding to the grim outlook for the economy is a tightening credit environment as confirmed by the CBK. The credit crunch is further compounding the economic challenges.
Despite the CBK’s recent rate cuts, banks are tightening lending standards, making it difficult for businesses and households to access credit. This could lead to a further slowdown in growth and a rise in unemployment.
On Tuesday the CBK announced it cut the Central Bank Rate from 12.75 per cent to 12.00 per cent to stimulate credit growth.
Banks have been reluctant to extend credit to businesses and households, citing rising costs and deteriorating loan quality.
This reluctance could stifle economic recovery efforts, as access to credit is crucial for stimulating growth, experts say.
CBK data indicates that lending to the private sector has sharply decelerated, with growth plummeting to 1.3 per cent t in August from 3.7 per cent in July.
This decline is primarily attributed to a rise in non-performing loans, now at 16.7 per cent of total loans, further tightening the fiscal stranglehold on consumers and businesses alike.
The construction sector, once a beacon of economic vitality, contracted by 2.9 per cent in the second quarter of 2024, raising alarm about the government’s ambitious housing agenda. President Ruto has positioned affordable housing as a cornerstone of his policy framework, but the downturn in construction activity undermines these plans. Indicators such as cement consumption and iron imports have notably declined, reflecting a broader malaise in a sector emblematic of Kenya’s economic aspirations.
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