Paul Arithi 
Kenya’s Gross Domestic Product (GDP) is projected to expand by 4.9 %in 2022, says NCBA Economic Outlook Report; a 0.3 percentage point decline from their initial 5.2%forecast in November 2021.The downgrade reflects the negative spillover effects of the Russia-Ukraine crisis, an uncertain external landscape, tightening local and external credit markets, domestic election jitters, and climate-related concerns, according to the NCBA Group research.
The research also argues that the third quarter will be most challenging due to a combination of election-induced lull and the full effects of the lingering external shocks especially the knock on effects of the Russia-Ukraine crisis. The bank, however, is optimistic about prospects for the finalquarteruncertain external, boosted by prospects of a trend reversal in business investments from the much expectedtransition dividends.
Rising inflation and interest rates have been a major concern for Kenyans as food and energycosts hit record highs. Elevated inflation is eroding household real income, lowering standards ofliving and dampening consumption. The growing threat of a cost of living crisis comes against abackdrop of limited fiscal space, suggesting that scope for government intervention is significantlylimited.
According to the report, supply chain shocks will be prolonged by the Russia-Ukraine crisis, whoseend is still not in sight, with negative ramifications for production and distribution of food andenergy and consequently, prices.
“Food inflation is expected to remain in double digits this year, owing to long-term disruptions inglobal food supply networks, domestic weather shocks, high input costs, and growingtransportation and value-addition costs,” says NCBA Group Managing Director John Gachora,Energy prices will continue to rise with the uncertainty around Russia’s output, OPEC+ productiondecision and the ability of the US and other energy producers to scale up output. For Kenya, thereport argues that the elimination of gasoline subsidies will accelerate inflation towards doubledigits. The threat of excessive inflation will be exacerbated by a weak shilling, the report adds.
According to the report, NCBA does not foresee any significant post-election disruption owing to Kenya’s demonstrated institutional capability to manage election disputes in a way that limits anydisruptions to the economy. However, the report attributes the election anxiety to the ongoingcombination of global economic and social challenges.
The report also discusses the shilling’s continued weakness against the dollar, which can beascribed to the balance of payment shocks from the Russia-Ukraine conflict and capital reversaldue to rising global interest rates and a strong US dollar.
“We expect the deteriorating global sovereign credit outlook, along with other highly leveragedand frontier economies, to underpin further capital reversal and diversion away from Kenya in theshort term,” says Raphael Agung’, NCBA’s Chief Economist. “So far, domestic interest rates are stillsignificantly low relative to the premium being demanded by investors.”
