Kenya Economic Outlook
Compared to Q4 2021, the economy lost steam in annual terms in Q4 2022 due to a fading low base effect and severe droughts. The deceleration was mainly driven by the contraction seen in the agriculture sector and decelerations in the transport and construction sectors. Additionally, high inflation, currency depreciation, dollar shortages and rate hikes likely kept a lid on activity. Looking at Q1, the private-sector PMI worsened on average, and remittances fell versus Q4, boding poorly for economic activity. In other news, on 12 May, Moody’s downgraded Kenya’s rating deeper into junk territory due to government liquidity risks and the deterioration of domestic funding conditions. The decision furthers Kenya’s liquidity and foreign reserves crunch. The continuation of fiscal consolidation efforts and IMF financing remain key to reassure international investors.
Inflation fell to a ten-month low of 7.9% in April (March: 9.2%) on more moderate increases in prices of food and non-alcoholic beverages. In 2023, inflation is expected to average slightly above last year’s level. Currency depreciation and spikes in food prices in response to adverse weather conditions remain upside risks.