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Kenya’s economic projections  look good for 2023 with real gross domestic product (GDP) primed to  grow at 6 per cent, despite a looming global recession and El Nino, an ICEA Lion’s report indicates.

While presenting the first quarter economic outlook on Kenya, ICEA Lion’s Head of Research Judd Murigi said the estimates will be driven by a rebound in the agricultural sector, manufacturing, transport and financial services, the latter three having been negatively impacted by the General Elections.

He said in 2022, the crucial agricultural sector faced a second successive year of contraction due to the effects of La Nina (drought) weather phenomenon that reports indicate may now be coming to an end, with non-occurrence of drought and the General Election that constrained growth in 2022 would give an uplift to a number of key economic sectors in 2023.

“As such, we anticipate the gross domestic product (GDP) growth in 2023 to approach or exceed 6 per cent if normal or near-normal rainfall resumes during the long rain season, and therefore sufficient measures put in place in advance for the adverse impact of potential El Nino (prolonged wet spell) season on harvest or access to markets,’ Murigi said.

International weather agencies have indicated that the period of La Nina is expected to end later in the year, giving way to El Nino, which in Kenya happens between March and May, a factor expected to boost the country’s agricultural output.

Murigi said economic activities are expected to decline in developed markets with the prospect of a recession lurking in 2023 as a result of Central Bank rate hikes to tame inflation, especially in the first half of the year. This is in addition to supply chain constraints caused by the Russia-Ukraine conflict now in its 330th day.

Hiking rates

“We expect a slow down in developed countries as a result of the central banks in developing countries have been hiking their rates in a bid to control inflation but inflation remains stubbornly high in developed economies as a result of supply chain shocks emanating from Covid-19, the situation in Russia and Ukraine,” he added. He said non-occurrence of drought would have a beneficial impact on food prices while the global economy slowdown would see a reduction in the price of oil, resulting in headline inflation receding to below the Central Bank’s target rate of 7.5 per cent in the course of the year. As of November 2022, inflation rate was 9.5 percent.

Murigi reckoned that private sector credit growth will trend towards high double digits this year, with bank’s resuming lending to the real economy. Year on year private sector credit growth hit 13 per cent in October 2022.  “The financial services sector experienced one of the sharpest slowdowns during the election period and is therefore expected to recover strongly in 2023,” he said.

While the shilling may face further downward pressure in the first half of the year, Murigi was nevertheless optimistic the Kenyan currency would weather the storm and fare better in the second half, benefiting from the dollar which is expected to shed some of the significant gains witnessed over the last 12 months.