Economic Analysis - Fiscal Constraints And Weak Lending Will Pose Continual Headwinds - MAR 2018
BMI View: Tighter fiscal policy and still-weak lending will constrain the pace of Kenya's economic growth over the coming quarters. However, improving weather conditions will lead to an acceleration overall.
We expect Kenya's economy to expand at a faster pace in the coming quarters, but the pace of expansion will remain limited compared to previous years. A likely pullback in fiscal spending will constrain the outlook for government-led investment. Meanwhile, the cap on banking sector interest rates will restrict banks' appetites to extend credit to higher-risk lenders, and despite its likely removal credit growth will likely remain constrained. However, better weather will provide some tailwinds to growth, leading to increased agricultural production and farmer incomes. As such, we forecast real GDP growth to rise to 5.1% and 5.7% in 2018 and 2019 respectively, up from a projected 4.2% in 2017 but below the previous five-year average of 5.5%.
Pullback In Government Spending Will Constrain Investment
|Growth To Accelerate But Headwinds Remain|
|Kenya - GDP|
|e/f = BMI estimate/forecast. Source: UN/BMI|