Old Mutual cut growth forecast down to 5.25pc for Kenya's economy

By MACHARIA KAMAU

Old Mutual Asset Managers have cut its growth projection for Kenya’s economy this year due to a weak performance over the second quarter. The firm reduced growth projections to 5.25 per cent from an earlier 5.5 per cent. 

The firm also observed that the recently enacted value added tax Act did not pose any dangers to the economy in the medium and long term.

It noted that inflationary pressures occasioned by price increments of items affected by the new tax law would ease in the coming months.

“OMAM’s economic growth forecast for 2013 has been marginally reduced to 5.25 per cent from 5.5 per cent, primarily due to weaker than expected quarter two numbers,” said Peter Anderson, chief investment officer, Old Mutual Asset Managers Kenya.

The Kenyan economy grew 4.3 per cent in the quarter to June, compared to 5.2 per cent in the first quarter of this year.

The projected 5.25 per cent growth rate by Old Mutual is in comparison to 6.1 per cent growth rate projected by the Ministry of Devolution and Planning.

World Bank in June said the Kenyan economy would attain a 5.7 per cent growth rate in 2013 while the African Development Bank in September said the growth rate would be between 4.5 – 5.5 per cent.

Anderson added that while in quarter two Gross Domestic Product (GDP) growth fell below initial expectations, the impact of falling commercial bank rates had seen an increase in private sector borrowing that would propel economic growth in the coming periods.

Anderson also said the new value added tax Act does not pose major risks to the economic growth. He said recent increments in prices of items affected by the new tax measures were a one-off that would not bring about inflationary pressures.

Inflationary impact

“We do not see material risks that would cause inflation to rise rapidly and expect the inflationary impact of VAT implementation to recede over the coming months,” he said.

Furthermore, he added, with the absence of very strong demand side pressures and limited supply side pressure from food and oil prices, the expectation is that the current monetary policy stance taken by Central Bank would be maintained into 2014.

The now controversial VAT Act, 2013 has already seen a surge in inflation, going up to 8.3 per cent in September from 6.67 per cent in August. Public outcry has seen the government move to modify the VAT law.