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Kenya largely 'safe' in global economic slowdown

BUSINESS
By MORRIS ARON | Jan 21st 2015 | 2 min read
By MORRIS ARON | January 21st 2015
BUSINESS

Kenya’s economy will largely remain unaffected by the recent economic growth downgrade by the International Monetary Fund which placed China at its slowest growth rate in 24 years.

Analysts who spoke to The Standard said while Europe and China face economic headwinds, majority of the African economies, Kenya included, will remain largely ‘safe’.

This is save for a dent in the uptake of sovereign bonds in Europe, the potentials of capital flight as the US Federal Reserve raises interest rates and the effects of China re-evaluating her investments.

“The IMF forecast is based on expected demand which can affect investment choices and priorities both by the government and the people in the countries where the slowdown impacts,” said Johnson Nderi, Corporate Advisory manager at ABC Capital.

“Expect pressure on funding in Government spending. On capital flight, higher interest rates in the US will reduce risk appetites, possibly resulting in less capital to the ‘riskier’ emerging markets.”

Low oil prices

IMF projects that as a result of weaker global economic growth, there will be weaker investment in Europe that will overshadow the benefits of low oil prices and a cheaper currency. The IMF also said that the European Central Bank’s anticipated move to expand monetary stimulus by buying sovereign bonds will be slackened.

“The authorities (in the affected countries) are now expected to put greater weight on reducing vulnerabilities from recent rapid credit and investment growth and hence the forecast assumes less of a policy response to the underlying moderation,” the IMF said.

“Slower growth in China will also have important regional effects, which partly explains the downward revisions to growth in much of emerging Asia (and Africa).”

Kenya has received immense support from China for infrastructure aid. Kenya also floated a sovereign bond in Europe early last year, which was heavily oversubscribed with investors offering nearly $8 billion or four times the $2 billion target.

Following the success, Kenya reopened the sovereign bond it issued in June, raising an additional Sh68 billion ($750 million) from international investors.

IMF on Monday cut its estimate for growth for the next year to 3.7 per cent, compared to four per cent forecast in October 2014, the steepest in three years. The IMF trimmed its estimate for China’s growth to 6.8 per cent, down 0.3 percentage points from October 2014.

The Government in the world’s Number Two economy will probably “put greater weight on reducing vulnerabilities from recent rapid credit and investment growth and hence the forecast assumes less of a policy response to the underlying moderation,” the fund said.

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