Analysts Upbeat on Economic Outlook

Increased output from agriculture, the ongoing economic stimulus programme and low interest rates have raised Kenya's economic growth expectations.

Most analysts had predicted a four per cent growth in quarter one, this year, but have revised the outlook to five per cent - showing the economy could be headed for a quick recovery if the August 4 referendum on a new constitution is concluded smoothly.

Better prospects

Analysts at PineBridge Investments, African Alliance and Old Mutual had predicted in April that the economy would grow at four per cent but they have raised it to five per cent on better prospects in the second quarter.

The economy grew 4.4 per cent in quarter one, compared to 5.6 per cent in a similar quarter in 2009, when it was at 2.6 per cent.

"The improved outlook is based on growth in the agricultural sector which accounts for a third of the country's GDP, hence the positive effect expected across the whole economy," said Mr Peter Wachira, a senior investment manager at PineBridge Investments.

Mr Paul Mwai, the CEO of African Alliance Asset managers, expressed similar sentiments.

"The prevailing low interest rates will encourage the private sector to increase their investments from new borrowings."

The performance of the agricultural sector, which depends on an erratic rainfall pattern, has emerged as main determinant of the Kenya's economic fortunes since it constitutes the largest segment of the country's economy and employs three in every five workers.

The country received adequate rainfall in quarter two which is expected to increase agricultural activity by creating new jobs and ease acute supply shortage in the foods market where a price rally has become one of the major drivers of inflation.

It will also put money in peoples' pockets and see them spending again.

The outlook raises optimism among policy makers and economists who see growth surpassing the 4.5 per cent target.

This will also be supported by the surge in lending by commercial banks that is expected to raise consumers' purchasing power and provide businesses with capital for expansion.

Political risks

Loans and advances grew from Sh695 billion in April, 2009 to Sh783 billion in February, this year, after a contraction in 2008 and first half of 2009.

But the pace of growth may face challenges from heightened political activities towards and after the August 4 vote on the constitution.

Analysts reckon that a successful conclusion of the constitution could lower Kenya's political risks.

"The passage of the proposed constitution will provide the economy with an additional momentum as politics will take a back seat, allowing the economy an opportunity to be the driving agenda," said Mr Mwai.