Prepare for More Economic Hardship – World Bank Warns Kenyans
Kenya’s economic future is a combination of problems and cautious optimism, according to the newly issued Kenya Economic Update.
While the grip of high inflation is predicted to weaken in 2024, Kenyans are likely to experience further economic hardship in the near future.
The Kenya Economic Update, released by the World Bank Kenya on Wednesday, June 5, paints a cautiously optimistic picture, highlighting a slowdown in economic growth with some positive improvements.
The report, in sharp contrast to the bright expectations of the pre-pandemic era, depicts an economy coping with tight monetary policy and fiscal reduction efforts.
These steps, while necessary to control inflation, are expected to reduce investment and public spending in the following year.
Global economic growth is predicted to slow further in 2024, following a dip in 2023.
Happening Now: Launch of the #KenyaEconomicUpdate Ed. 29 | Fostering trade for robust growth and dynamic job creation. pic.twitter.com/91W0DeJD4O
— World Bank Kenya (@WorldBankKenya) June 5, 2024
A ray of optimism appears in the form of falling global commodity prices, with the exception of oil. This could help Kenyan households that are trying to keep up with rising living costs.
Food prices, which have long been a source of concern, are expected to fall further in 2024, providing consumers with some relief.
However, the labor market presents a worrying picture.
According to the report, the employment situation worsened in 2023, with a decrease in real average incomes and a disturbing trend of informal work surpassing formal job creation.
Real average earnings declined 4.1 percent, continuing a decreasing trend that began in 2020.
While overall wage employment increased by 4.1%, this was mostly due to informal work, which increased by 4.5%, exceeding the 3.3% increase in private sector wage employment.
The labor market has been heavily hit by rising living costs and unfavorable macroeconomic conditions, affecting both real earnings and formal job growth.
In 2023, informal employment added around 721,000 workers, while the private sector created only 68,000.
Kenya’s trade sector has also felt the impact. Imports and exports fell in 2023, reflecting a mix of factors such as decreasing domestic demand, a weaker currency, and slowing global trade.
Unfortunately, this trend continues the overall fall in trade volume that began in the early 2010s.
Despite the bleak near-term picture, there are indicators of a possible rebound in 2024.
The Kenyan shilling has risen against the US dollar, resulting in a small increase in imports. Furthermore, exports of vital commodities like tea and horticulture have shown signs of growth.
The World Bank expects Kenya’s GDP growth to average around 5.2 percent in the medium period (2024-2026).
This is a positive revision to previous projections, reflecting stronger macroeconomic conditions and recent Eurobond issuance.
However, the first year (2024) is predicted to see a decline to 5% growth due to continuous fiscal consolidation and a fading agricultural recovery.
Kenya’s medium-term recovery is predicted to be driven primarily by the private sector.
Favorable harvests, moderate inflation, and improved loan access are projected to promote private consumption.
Furthermore, remittance inflows from the Kenyan diaspora are expected to continue stable, giving critical support to household earnings.
Nonetheless, major hazards exist. Extreme weather occurrences, such as the recent floods that followed years of drought, are a serious danger to agricultural output and food security.
Furthermore, the government’s ability to meet ambitious fiscal targets and undertake structural reforms will be critical in maintaining macroeconomic stability and promoting employment growth.
Prepare for More Economic Hardship – World Bank Warns Kenyans
