Fitch downgrades Kenya’s economic growth forecast

Fitch Solutions has downgraded its growth forecast for Kenya to 4.72 per cent from 5 per cent, citing higher energy prices and inflationary pressures.

The extent of the downgrade reflects similar forecasts for several major African markets, including South Africa, Nigeria, and Ethiopia, as well as Cote d’Ivoire and Cameroon whose economic projections have also been devalued.

Latest revision by the rating agency is lower than the 4.95 per cent consensus estimates offered by Bloomberg.

The two firms had in March projected that the economy would grow by 5 per cent, only to revise that figure on inflationary pressures and higher food and fuel prices activated by the Russian invasion of Ukraine. The economy registered a remarkable 7.5 per cent last year, according to Economic Survey 2022 data, and was expected to stabilise at a growth rate of 6 per cent this year.

Growth prognosis

But other local uncertainties like the August 9 General Election have had a negative effect on those growth prognosis. Fitch has also cut its forecast real gross domestic product (GDP) growth for sub-Saharan Africa to 3 per cent in 2022, down from a 3.8 per cent projection at the beginning of the year, and below the pre-pandemic 10-year average.

“The Russia-Ukraine conflict will weigh on business sentiment. Our Oil and Gas team expects domestic oil production to increase by 3.5 per cent in 2022 up from a 4.9 per cent decline in 2021 as oil producers take advantage of higher prices, noted the just released sub-Saharan African macro monthly outlook by Fitch Solutions.

Kenyan firms have displayed greater concern that growth will be dampened by rising prices and living costs in the months ahead owing to the factors listed above. 

“The next three months will be tight for business owners but this could change after the elections, which has triggered another level of uneasiness and indecision by corporates,” said Peter Macharia, an economist.

Public resources

The economy has been reeling from effects of Covid-19, Russia-Ukraine war and looting of public resources, factors that have affected incomes and jobs, with an April 2021 Bretton Woods institution estimating that GDP contracted by 1 per cent last year due to the pandemic alone.

Up until last July when the government lifted all movement restrictions, for most part of 2020, the economy was exposed through the dampening effects on domestic activity of the containment measures and behavioural responses.