Kenya’s economy to expand in the third quarter

According to the May 2024 Market Perceptions Survey, undertaken by the Central Bank of Kenya(CBK), Kenya is expected to record a gradual increase in economic activity in June, July and August, supported by increased agricultural activity and a stable macroeconomic environment,
Chief Executive Officers of Banks and Senior Officers of Private Firms interviewed also expect overall inflation to remain relatively stable at around 5 percent over the next three months and to be anchored around the 5 percent target in the medium term.
Bankers say there will be moderation in private sector credit growth in 2024 compared with 2023, largely due to high lending rates.
The Survey revealed sustained optimism by respondents about Kenya’s economic prospects in the next 12 months.
The Survey revealed relatively good forward hotel bookings for the period May-August 2024.
In the Survey, respondents were requested to indicate their expectations of overall inflation for the next three months (May, June, and July 2024), the next 12 months (May 2024 – April 2025), the next two years (May 2024 – April 2026), and the next five years (May 2024 – April 2029).
The results reveal that respondents expected inflation to remain stable at around 5 percent in May, June, and July, supported by lower food and fuel prices and a stronger Shilling.
The Survey found that inflation is forecast to remain stable, supported by gains from a stronger Kenya Shilling exchange rate against the US dollar by reducing costs of raw materials and other goods, leading to lower prices of goods and services in the domestic market.
Food inflation is forecast to decline following the heavy rains despite the disruptions and flooding that affected some food crops like onions and tomatoes, while lower electricity costs and pump prices will ease fuel inflation.
The May 2024 Market Perceptions Survey sought bank and non-bank private sector firms’ assessment of economic activity in March, April and May 2024 and their expectations for June, July, and August 2024.
The Survey results reveal that Bankers expect a continued gradual increase in economic activity in the next three months. The economy is expected to record stronger activity in the next three months, supported by the strengthening Shilling and improved USD supply, the benefits of which are expected to be passed by importers to consumers and to support capital investments.
In addition, the CBK found that most bankers expect further support to economic activity to come from improved food production and activities in the agricultural sector as the flooding decreases and from lower inflation expected to allow consumers to have more disposable incomes to enable increased demand, which will boost economic activity.
However, risks to economic activity cited by respondents include the high cost of living in most households, which has led to muted spending and activity levels as a result of reduced disposable incomes.
The prevailing high cost of borrowing due to a rise in lending rates has led to increased loan repayment costs, further constraining disposable incomes for consumption and investments while causing a rise in non-performing loans in banks and other financial institutions.