Fund managers lower economic growth forecast to 4pc

By James Anyanzwa

Fund managers at PineBridge Investments have lowered their growth forecast for Kenya this year from five to four per cent.

They cited an expected slowdown in credit growth and uncertainty over the timing of the General Election as impediments to growth.

"Economic growth is 2012 is likely to be subdued by the lag effects of high interest rates and cautious stance adopted by the private sector ahead of the General Election," said Edward Gitahi, the company’s senior investment manager and head of research.

Mr Gitahi said investors and the business community are undoubtedly going to be closely monitoring political developments, especially as the country approaches the General Election.

"The uncertainty regarding the timing of elections could be a source of anxiety to some people," he said.

The managers projected interest rates to remain high in the next six months mainly due to elevated inflation and the need to defend the local shilling from depreciation.

"The high interest rate environment is likely to depress the demand for credit from both business and individuals," said Peter Wachira, Vice President and senior investment manager, PineBridge Investments (EA) Ltd.

High rates

Mr Wachira said the impact of high interest rates could also suppress growth in the financial sector, real estate, construction and trade.

Last year, the local currency depreciated by 5.4 per cent against the dollar. However, in October, the shilling reached a historical low of Sh106.2 against the greenback, having lost more than 30 per cent of the value since the beginning of the year.

This weakness was largely attributed to a widening current account deficit due to increased import demand, a rise in global crude oil prices and the dollar strength in the international markets following the Eurozone crisis.

Consequently, the Central Bank of Kenya and the Treasury took bold measures to support the local currency.