2013-01-01 13:58:53 - Kenya Business Forecast Report Q1 2013 - a new country guide report on companiesandmarkets.com

We continue to believe that the Kenyan economy will gather momentum after a slow first half in 2012 as domestic demand benefits from falling inflation and interest rates. Net exports are likely to remain a weak spot thanks to ongoing malaise in Europe, one of the country´s major trading partners. Our 2012 growth forecast remains at 4.5%, accelerating to 5.8% in 2013.

We are forecasting that the monetary authorities will cut interest rates by an additional 200 basis points (bps) in 2012 and a further 300bps in 2013 – taking the policy rate to 8.00% by the end of next year. Falling inflation and continued aggressive actions in the repo market are key assumptions underlying our expectations.

We maintain our view that

 

 

Prime Minister Raila Odinga is the favourite to win the presidential election scheduled for March 4 2013.

The successful formation of an alliance by his opponents, however, would likely be enough to keep him from state house.

Major Forecast Changes

We have revised down our forecasts for Kenya´s current account deficit in 2012 and 2013 due to increased remittance inflows. We now see the shortfall coming in at US$4.3bn in both 2012 and 2013 (11.2% and 9.7% of GDP, respectively), down from previous estimates of US$4.9bn in both years.

We have made a downward adjustment to our forecasts for the fiscal deficit in the 2012/13 fiscal year owing to the publication of new data by the Ministry of Finance. We now see the shortfall coming in at 5.1% of GDP compared to our previous estimate of 6.3%.

Key Risks To Outlook

The weather poses risks to our views on growth, inflation, the currency and the balance of payments position. Another season of inadequate rain would undoubtedly have negative ramifications for all of these.

Another major risk stems from political stability. Although by no means our core scenario, we cannot rule out the possibility of a repeat of the unrest which followed the last election in 2007 at the vote scheduled for March 2013. Other political risks stem from simmering religious and ethnic tensions mainly in the Coast Province and from International Criminal Court trials for the men accused of fomenting the 2007 election violence which are scheduled to take place in April 2013, shortly after the election. An escalation of any one of these issues could have negative implications for the economy.

Our core scenario for Kenyan growth assumes a mild recession in Europe. If the situation ends up being far worse (eg, a breakup of the eurozone), Kenya would be negatively affected through its trade and financial links, not only with Europe, but the rest of the world as well.

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