Boston, MA -- (SBWIRE) -- 05/21/2014 -- A wave of small-scale terrorist attacks shows that the Kenyan security services are unable to prevent Somali-based al-Shabaab from operating in Mombasa. Another large-scale attack, especially in Nairobi, would have a devastating effect on investor confidence. Over the longer term, sharp ethnic divisions pose a serious threat to political stability in Kenya. Political parties are mostly organised along ethnic lines, and it remains possible that future elections could lead to a crisis such as the one seen in 2007-2008.
Economic growth in Kenya is still accelerating, but rising headwinds have caused us to lower our 2014 real GDP growth forecast from 6.0% to 5.7%. Economic expansion will average 6.0% between 2014 and 2018, faster than in recent years but slower than in many African countries.
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Inflation has remained constrained in the first half of 2014, but we expect it to pick up in the second half of the year due to rising food prices. Price growth will likely remain relatively moderate, but a worse-than-expected harvest could cause inflation to spike.
Questions regarding the accuracy of Kenyan official data have led us to revise our 2014 current account deficit forecast from 8.7% of GDP to 7.6%. Lower oil prices and strong export growth will see the shortfall shrink, though a poor harvest could boost imports and prevent this.
Faster economic growth and lower capital spending will cause Kenya's fiscal deficit to narrow over the coming years. We predict that the country's budget shortfall will be equivalent to 7.5% of GDP in 2013/14.
Kenya's GDP will double in US dollar terms between 2014 and 2023 as growth accelerates and the currency remains relatively stable. The country will benefit greatly from its role as the economic and commercial hub of the fast-growing East African Community.
Major Forecast Changes
We have downwardly revised our real GDP growth forecasts due to poor figures from Q3 2013, the last period for which official data is available.
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