The Central Bank of Kenya (CBK) has projected a slowdown in the country’s economic growth in 2024, anticipating a growth rate of 5.4%. This marks a slight decline from the 5.6% growth recorded in the previous year. Despite expectations of robust performance in the services sector, sustained agricultural activities, and improved exports, the economy faces significant challenges that are likely to temper its growth.
Economic Forecast Amid Global Uncertainty
CBK Governor Kamau Thugge highlighted several global risks that could negatively impact Kenya’s economic trajectory. Chief among these are ongoing geopolitical tensions, including the Russia-Ukraine war, the Israel-Palestine conflict, and the attacks on vessels in the Red Sea by Houthi rebels. These international conflicts contribute to a volatile global economic environment, which poses risks to emerging markets like Kenya.
“The main risks to the global growth outlook relate to further escalation of geopolitical tensions, interest rates remaining higher-for-even-longer in advanced economies, and policy uncertainty attributed to changes of government in some major economies,” Governor Thugge noted in his post-Monetary Policy Committee (MPC) statement.
These risks create a complex backdrop for Kenya’s economy, which must navigate not only domestic challenges but also the ripple effects of global economic instability. Higher interest rates in advanced economies could lead to tighter global financial conditions, making it more expensive for Kenya to access international capital. Furthermore, geopolitical uncertainties can disrupt global trade routes, affecting Kenya’s export markets and increasing the cost of imports.
Sectoral Performance and Economic Resilience
Despite these challenges, certain sectors of Kenya’s economy are expected to perform well. The services sector, a cornerstone of Kenya’s economic structure, is projected to continue its strong performance. This sector encompasses a wide range of activities, including wholesale and retail trade, accommodation and food services, financial and insurance services, information and communication technology, and real estate.
Agriculture, another vital sector of the Kenyan economy, is also expected to sustain its performance, buoyed by favorable weather conditions. The agricultural sector, which employs a significant portion of the population, has shown resilience and is crucial for both domestic food security and export earnings.
Additionally, Kenya’s export sector is expected to see improvements, driven by diversification efforts and increased access to international markets. However, these gains might be offset by slower growth in the industrial sector, particularly in manufacturing and construction, which have been facing headwinds due to higher input costs and supply chain disruptions.
Optimism Amidst Challenges
Despite the projected slowdown, there remains a sense of cautious optimism about Kenya’s economic prospects. The CEOs Survey and Market Perceptions Survey conducted ahead of the recent MPC meeting revealed a positive outlook among business leaders, who cited a stable macroeconomic environment, low inflation, and a relatively stable exchange rate as factors supporting economic growth.
Governor Thugge emphasized that this optimism is rooted in the continued strong performance of agriculture and a stable macroeconomic framework. However, he also acknowledged concerns about the potential impacts of recent protests, the high cost of doing business, and the uncertain global geopolitical landscape.
The recently released GDP data for the first quarter of 2024 showed a real GDP growth of 5%, driven by the strength in agriculture and the services sector. However, the slowing growth in the industrial sector signals potential challenges ahead.
Comparative Projections and Broader Implications
The CBK’s projection of 5.4% growth in 2024 is more optimistic than the World Bank’s forecast, which anticipates a slowdown to 5%. The World Bank’s more conservative outlook is based on the ongoing fiscal consolidation efforts and the tight monetary policy stance that are expected to dampen economic growth this year.
Despite the tighter fiscal and monetary conditions, the World Bank projects that restored access to international capital markets could spur increased investment. This, in turn, is expected to boost investor confidence, attract capital inflows, and provide more credit to the private sector as domestic government borrowing decreases.
The World Bank also highlights other potential growth drivers, including the recovery in agriculture and tourism, as well as deeper regional integration within East Africa. Looking ahead, the World Bank forecasts that Kenya’s economy could grow by at least 5.2% in 2025-2026, reflecting a gradual recovery as global conditions stabilize.
Navigating the Future
Kenya’s National Treasury had initially projected a more ambitious growth rate of 6.3% for 2024, reflecting the government’s optimism in navigating through the challenges posed by high interest rates and global risks. However, the economic reality suggests that a more tempered growth outlook is likely, as the country continues to face both domestic and international headwinds.
In conclusion, while Kenya’s economy is set to grow at a slower pace in 2024, the resilience of its key sectors, coupled with prudent economic management, could help mitigate the impacts of global uncertainties. As the country continues to adapt to a changing global landscape, the ability to navigate both risks and opportunities will be crucial in maintaining a stable and sustainable growth trajectory.
