Kenya's GDP grows 5.2% y/y in Q2 2022

Kenya's economy faced a slow growth in the second quarter of 2022, with GDP expanding by 5.2% compared to 11% in the same period last year. The Kenya National Bureau of Statistics attributes this decline to inflation and a weakening shilling. David Chesire, Associate Economist at Mentoria Economics, discussed the economic challenges facing Kenya in a recent interview with CNBC Africa. Chesire highlighted several factors contributing to the economic slowdown, including below-average rainfall, rising inflation, and pre-election tensions. These issues have created a challenging environment for policymakers, with no easy solutions in sight. However, Chesire suggested that an expansionary program could be a viable option to stimulate growth and attract investments. One of the key concerns for Kenya is inflation, which has surpassed the 7.5% limit, reaching close to 9%. The country recently scrapped a subsidy program to address rising oil prices, further exacerbating inflationary pressures. Chesire emphasized the need for a careful approach to managing these risks and ensuring a sustainable recovery. The depreciation of the shilling against the dollar has also impacted Kenya's economy, particularly as a net import country. To address this challenge, Chesire recommended boosting access to credit for the private sector and reducing external borrowing to avoid crowding out effect. He noted that the government's decision to abandon plans for a billion-dollar borrowing from international capital markets signals a shift towards a more responsible economic strategy. Looking ahead, Chesire expressed optimism about the potential for growth in the tourism sector, which is a significant contributor to Kenya's economy. He highlighted the importance of aligning business plans with the national agenda and overcoming lingering doubts from past election-related turmoil. In terms of strategies to stabilize the shilling, Chesire proposed continued intervention by the central bank to sell US dollars and address volatility in the currency market. He also emphasized the need for proactive measures to adjust to fluctuations in oil prices, which have a significant impact on inflation. Addressing the ongoing drought in the region, Chesire emphasized the importance of foreign assistance to mitigate the effects of the catastrophe and ensure food security. He expressed confidence that Kenya and the East African bloc could bounce back from these challenges once extraneous factors subside. As Kenya navigates economic recovery amidst external and internal challenges, Chesire underscored the need for a coordinated effort from policymakers, businesses, and international partners to support sustainable growth and stability.