The economy continues to show strong performance. The Gross Domestic Product (GDP), data for the second quarter 2022, indicates real GDP growth of 5.2 per cent.
This performance reflects strong activity in transport and storage as well as wholesale and retail trade, information, communication, and financial and/or insurance.
Central Bank of Kenya (CBK) Governor Dr. Patrick Njoroge who is also chairman of the Monetary Policy Committee (MPC) said that the economy is expected to remain strong in the last quarter of 2022, supported by the services sector despite subdued performance in agriculture and weaker global growth.
Njoroge stated that two surveys, the CEOs Survey (and the Market Perceptions Survey) were conducted prior to the MPC meeting on November 23, 20,22. These surveys were the CEOs Surveys and Market Perceptions Surveys. They revealed sustained optimism about the prospects of economic growth for 2022 and 2023.
“The optimism was attributed to increased economic activity following the conclusion of the elections, opportunities for growth in sectors such as ICT, and the Government’s renewed focus on MSMEs,” said Njoroge.
“Nevertheless, respondents remained concerned about reduced consumer spending, domestic inflation, and subdued agricultural performance due to depressed rainfall, as well as increased global risks including inflation, recession, and the continued war in Ukraine,” he said.
Njoroge explained that a survey of the agricultural sector, conducted in the first half the month, showed that prices for key items had moderated in November.
“Additionally, respondents expect output for most agricultural products to increase in the next harvest, on account of improved weather conditions and increased acreage,” said Njoroge.
He also stated that the main factors that limit agricultural production are high transport costs, unpredictable weather conditions, as well as the cost of inputs, such as seeds, fertilizers, and high fuel prices.
Njoroge stated that exports of goods have remained strong and grew by 13.9 percent in 12 months to September 2022 as compared with a similar period 2021.
“Receipts from tea and manufactured goods exports increased by 15.9 percent and 26.0 percent respectively during the period. The increase in receipts from tea exports reflects improved prices attributed to demand from traditional markets,” said Njoroge.
According to the CBK Governor in October 2022, overall inflation rose to 9.6 percent from 9.2 percent in September. This was primarily due to fuel and food prices. Food inflation increased to 15.8 percent in October, from 15.5 percent September. This was mainly due to higher prices for maize and milk due to reduced supply due to depressed rains and the impact of disruptions in international supply chains.
“Fuel inflation increased to 12.6 percent in October from 11.7 percent in September, mainly due to scaling down of the fuel subsidy, increases in electricity prices due to higher tariffs, and increases in transport costs,” he said.
Njoroge pointed out that the global economic outlook is now worsening, reflecting the effects of rapid tightening monetary policy in advanced economies, particularly the U.S., ongoing war in Ukraine, as well as the lingering pandemic-related disruptions, particularly in China.
He stated that imports of goods increased 18.0 percent over the 12 month period ending September 2022, compared to 12.6 percent in September 2021. This is mainly due to increased oil imports and intermediate goods.
Njoroge stated that service exports have increased due to sustained improvements in international travel and transport.
“Remittances totaled USD3, 996 million in the 12 months to October 2022, and were 10.9 percent higher compared to a similar period in 2021,” said Njoroge.
He said that the current deficit was estimated to be 5.3 percent of GDP over the 12 months to Sept 2022. It is projected to reach 5.6 percent of the GDP in 2022, as opposed to 5.9 percent as previously estimated. This is due primarily to increased receipts from service-exports and resilient remittances.
Njoroge stated that the CBK foreign currency reserves, currently at USD 7,038million (3.94 months of import coverage), continue to provide adequate protection and a buffer against short-term shocks in foreign exchange markets.
Njoroge, a banker, stated that there were repayments and recovery in the building and construction and personal and household sectors, as well as the tourism, restaurant and hotel sectors.
“The number of loan applications and approvals remained strong, reflecting improved demand with increased economic activities,” he said.
He stated that the Monetary Committee was aware of the persistent inflationary pressures, elevated global risks, and their potential impact on the domestic economic system. It concluded that there was ample scope for tightening the monetary policies to help anchor inflation expectations.
“In view of these developments, the MPC decided to raise the Central Bank Rate (CBR) from 8.25 percent to 8.75 percent,” said Njoroge.
He said that the Committee would closely monitor the effects of the policy measures as well as developments within the global and domestic economies and is ready to take additional steps if necessary.
By Joseph Ng’ang’a
Source: kenyanews