Recovery was mapped out by a pick-up in economic growth, having averaged 6.9% for the first three quarters of 2021. Despite the prevailing uncertainties occasioned by the vicious cycle of new variants and waves of infection, we expect an increase in economic activity. Global supply chain bottlenecks, rising oil prices and elevated inflation are expected to negatively affect the local economy and will likely be a pain point for some sectors. However, we do not expect any new restrictive measures to be introduced providing relief for sectors such as transport and storage, education and accommodation and food services.

➢ Economic Rebound: GDP growth figures for the period of 3Q21 expanded by 9.9% compared to a 2.1% contraction in 3Q20. The recovery was mainly driven by rebounds across various sectors of the economy following the negative effects of the pandemic in corresponding quarters in 2020. The Agricultural sector contracted, for a third consecutive quarter, by 1.8% compared to a 4.2% growth in 3Q20, mainly attributable to unfavorable weather conditions experienced in
the country for the better part of the year.

➢ Inflationary Pressure: In 2021, inflation remained relatively stable with a gradual rise between 2Q and 3Q to a high of 6.91% in September. The rise in inflation, during the year, was mainly driven by higher food prices and fuel prices.

➢ Accommodative monetary policy: During the year, the MPC met six times and elected to maintain the Central Bank Rate (CBR) at 7.0% while the cash reserve ratio was increased by 100bps to 5.25%. We expect the CBK to maintain an accommodative monetary policy stance, at least for the first half of 2022.

➢ Fiscal risks: The National Treasury proposed a KES 3.03 trillion budget for FY2021/22 with revenue anticipated to come in at KES 2.04 trillion and a fiscal deficit of KES 0.93 trillion. The government’s revenue collections for most parts of 2021 has been above target. However, in order to plug the increasing budget deficits, the government has been forced to increase its borrowing resulting in an increase in total debt that currently stands at KES 7.99 trillion. The sustainability of this debt remains a concern as the government breaches a number of debt sustainability indicators.

➢ Equity market: In 2022, company earnings are expected to increase as economic conditions improve. This coupled with a historical trend of a positive performance during election years. We expect an increased interest in the Banking stocks more so in 2Q following the resumption of dividend payments.