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Economic analysts predict 5.25% economic growth

16 October 2013, 06:45

Nairobi - Economic analysts on Tuesday projected the country's GDP to grow by 5.25 percent in 2013.

Old Mutual Asset Managers Chief Investment Officer, Peter Anderson, told journalists in Nairobi that the growth will be partly driven by the improving performance of the agricultural sector.

"The positive impact from the optimal rain season will lift economic growth to 5.25 percent in 2013," Anderson said. This forecast is a marginal decline from the projection back in January of 5.5 percent.

"This is primarily due to weaker than expected economic performance of the second quarter of 2013," he said. According government data, Kenya's economy grew by 5.2 percent and 4.3 percent respectively in the first and second quarters of 2013.

Anderson noted that there could be an upswing in the economy during the second half of 2013 relative to growth achieved in the first half. "This is due to low inflation risks, acceleration in private credit sector borrowing and the impact of devolved funds," he said.

OMAM said the second quarter growth fell marginally below expectations as a result of the anxiety surrounding the presidential elections.

The best performing sectors so far this year include the agricultural, wholesale and retail trade, financial intermediaries and construction sectors, according to the official.

"The only contracting sector is the tourism industry as a result of slow growth in the number of international arrivals. However, the impact of a slowing tourism sector will be felt more in 2014," Anderson said.

The chief investment officer said that the pick up in private credit growth in second quarter of 2013 is expected to continue in the last half of the year. "This is as a result of the falling commercial bank rates that will lead to a bigger uptake of private sector borrowing," he said.

In May, Central Bank of Kenya reduced its key lending rate to 8. 5 percent. "The financial sector will be a key economic driver as the interest rates will be lower compared to last year," he said.

OMAM added that the tea earnings for the first seven months of 2013 was up by twenty percent in 2013 compared to a similar period in 2012.

"This means that rural households will have a lot more money for consumption," he said. He added that the improving trend in vehicle registrations is also an indicator of the strong economic growth.

"Electricity consumption has also increased by 3.8 percent between January and August compared to a similar period in 2012, "Anderson said.

He said that Kenya Revenue Authority tax collection for quarter three has also increased significantly compared to a similar period last year.

OMAM does not anticipate inflation to rise rapidly in the remainder of the year.

"In fact, the inflationary impact of the new Value Added Tax will recede over the coming months," he said

OMAM Investment Analyst Carolyne Kiragu said that the release of devolved funds to the county governments will have a positive impact on growth in the second half of the year.

"As counties look to provide services at the local level, it will spur business and consumption growth," she said.

Kiragu said that there is expectation for higher growth in 2014 particularly if macroeconomic stability is attained.

The investment analysts said that opportunities in Kenya remain attractive both for domestic and foreign investors.

"The successful issue of Kenya's planned Euro bond would further cement the country's position as a superior investment destination," she said.

- Xinhua


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