Kenya growth outlook boosted by rain, shilling rally

Kenya's economy will expand between 4.5 to 5.0 percent this year, thanks to good rainfall and a recovery in the local currency in recent weeks, before accelerating to 5.0 percent or higher in 2012, the planning minister said on Monday. The east African nation has faced a tough 2011 after drought hurt its key agriculture sector earlier this year, fuelling rapid inflation and a collapse in the value of the shilling which the central bank has struggled to control.
Europe's debt woes and north Africa's political turmoil also hurt Kenya's exports to both regions. Some economic analysts said Planning Minister Wycliffe Oparanya's improved forecasts - up from an earlier 4.0 percent growth for 2011 - looked more realistic than Finance Minister Uhuru Kenyatta's predictions of 5.3 percent in 2011 and 6.1 percent in 2012. Late last year, the government had targeted a 2011 growth rate of 6.5 percent.
"I see growth at roughly 4.5 to 5.0 percent," Oparanya told Reuters in an interview, matching a World Bank forecast. "Rising food prices and high oil prices have affected our growth this year. But we are very hopeful that with a lot of rain our economy is going to recover. We see an even better growth of not less than 5 percent in 2012."
Heavier than-expected rainfall across much of the country in the final quarter of 2011 should help curb food inflation next year, the minister said. Prices in food and non-alcoholic drinks, which carry a 36.04 percent weighting in the consumer price index, rose by 26.20 percent year-on-year in November, the same as in October. The overall year-on-year rate of inflation rose for the 13th straight month to 19.72 percent in November, mainly fuelled by high global oil prices and a weak shilling that lost as much as 25 percent against the dollar this year.
Kenya's central bank has now tightened the monetary screws, hiking its key lending rate by 11 percentage points in the fourth quarter of 2011 to its current level of 18 percent to combat inflation and exchange rate volatility. The shilling has rallied strongly since.