BUSINESS

Kenya likely to lose 1.5% GDP in US-China trade tension-IMF reports


The escalating trade conflict between the US and China, is a threat to the medium-term growth plans of Sub-Saharan Africa, which includes Kenya.

An IMF report released this month shows trade tensions between the US and China could lead to a cumulative loss of 1.5 per cent GDP in sub-Saharan Africa between 2018 and 2021.

This would derail the targeted 10 per cent economic growth rate under the third Kenya Vision 2030 Medium Term Plan (MTP III 2018-2022 ).

The government aims to achieve this through increased levels of investment and shares of the manufacturing, industrial and exporting sectors in the economy.

However, the IMF showed the trade wars between the world’s largest economies will have a negative impact on commodity prices and domestic investment as the country is a huge trader with both countries.

“Sub-Saharan African countries most affected by the trade tensions would be the commodity exporters and those countries (commodity exporters and importers alike) that are more integrated in global markets,” the report stated.

In September, US’s Federal Reserve raised the funds rate to range between 2 and 2.25 per cent – affecting the rate at which banks borrow from each other and lending to consumers – to encourage spending and control excess.

“The probability of a large reversal in foreign flows in sub-Saharan Africa is significantly higher as US interest rates go up, while around one-third of currency crises have been associated with a reversal in foreign flows.

Thus, the large amounts of maturing bonds for the region’s frontier markets in 2019–20 and in 2024–25 suggest substantial refinancing risks”. The report stated.

This has worsened the global financial conditions leading to sudden shift of investors to restrain financing and growth of the economies.

This was evident in the Central Bank’s weekly bulleting for the week ending October 11.

According to CBK, the total number of shares traded declined by 50 per cent to 52.03 million from 104.10 million traded in the previous week ended October 4. Equity turnover also declined to Sh1.29 billion, a 64.1 per cent from Sh3.59 billion in the same previous week.

Shareholders lost Sh42.79 billion in wealth, marking a 1.92 per cent decline to Sh2.18 trillion of market capitalisation.

 

Exclusively Newslinegh

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