BY HENRY KAHARA
NAIROBI, Wednesday, Jan. 25 – Economic analysts have lowered growth forecast for Kenya’s economy in 2012 from 5.0 per cent to between 4 and 4.5 per cent. This is due to the expected slowdown in credit growth and uncertainty around the timing of the next general election.
However, they are optimistic that the higher inflation rate which the country experienced last year will fall to a single digit levels in the second half of 2012 from the current 19 per cent. “We expect a gradual turnaround in 2012 supported by a recovery in the agricultural sector and public spending on infrastructure,” says senior Investment Manager of Pine Bridge Investment, Mr Edward Gitahi.
The analysts estimate that overall inflation could average 11 per cent in 2012 from 19 per cent in December 2011, helped by the positive food supply this year brought by better short rains late last year.
“A key economic challenge in 2011 was the persistent rising inflation levels which resulted from drought conditions experienced early in the year that led to food shortages, rising crude oil prices and the significant weakness that made imported goods relatively more expensive,” explained Mr Gitahi.
It is expected that there will be a recovery in agriculture production due to an improvement in weather conditions. Mr Gitahi said that investors and business community are undoubtedly going to be closely monitoring political developments especially as we approach the next general elections.
“Investors may delay in investing especially if there will be a run off ; but if there will be clarity that there will be winner during the first round and smooth transition of power there is likelyhood of more investors,” he said.
Kenyans can, however, take solace in the fact that significant political reforms have taken place since the disputed 2007 elections. This shall greatly enhance the credibility of the electoral process, which will in term mitigate against political risk and therefore assuring investors that all will be well.
Kenyan Shilling is also expected to trade in the range of Ksh85 and Ksh90 to the dollar the first half of 2012. Kenyan shilling was one of the most volatile currencies in 2011, losing up to 30 per cent to the US dollar at one point. This was mostly caused by rising imports of petroleum, food, manufactured goods, machinery and transport equipment.
According to PineBridge Senior Manager Mr Peter Wachira the interest rate levels are expected to be high mainly due to elevated inflation and need to defend the local shilling. “Economic growth in 2012 is likely to be subdued by the lag effects of high interest rates and cautious stance adopted by private sector a head of the forth coming general election,” said Mr Wachira.