December 2022 Review

Corporate Profit Warnings Return - The month of December saw the announcement of an expectation of a greater than 25% decline in prior year PAT from companies such as Standard Group, Crown Paints and Flame Tree Group. We observed that the most common underlying reasons were; Increased cost of input raw materials, volatility in the forex market and slow market demand.

Economic Growth Slowed in Q3’22 - KNBS published GDP figures for Q3’22 where growth slowed to 4.70% compared to 9.30% recorded in Q3’21. The performance was mainly driven by growth in accommodation and food service activities (22.90%), wholesale and retail trade (9.10%) Professional services(8.70%), education (7.10%) and financial and insurance (5.30%). The ongoing severe drought led to the contraction of Agriculture sector by 0.60% while a decline in hydro power generation led to the contraction of the Electricity sector by 4.70%.

Inflation Continued to Cool off - The headline inflation declined for the second straight month to 9.10% from 9.50% recorded in November. The CPI increased 0.53% to 128.99 in December 2022 from 128.31 in November 2022. Meanwhile, the food and non-alcoholic beverages index decreased to 13.80% from 15.40% in November. This is on account of decreases in global edible oil prices and favourable weather that increased food output. We expect headline inflation to remain under pressure and above the CBK’s upper target at least until Q2’23.

IMF disbursement lifted Forex Reserves – During the month, the IMF announced the completion of the fourth review under the ECF/EFF arrangements totaling to Special Drawing Rights (SDR) 1.66Bn signed in April 2021. The completion allowed Kenya to immediately access SDR 336.54Mn (est. USD 447.39Mn). The announcement was a welcome boost as CBK’s usable foreign exchange reserve jumped back to above 4-months of import cover. Forex reserves closed December at USD 7,439 Mn from USD 7,045 Mn in November a 4.17 months import cover, which meets the CBK’s statutory requirement of at least 4 months of import cover but remains below the EAC region’s convergence criteria of 4.5 months of import cover.

Shilling Continued Losing Streak against USD - Kenya shilling continued to depreciated by a further 72bps against the USD in December to close at KES123.37 versus KES122.45 to the dollar at the end of November. In 2022, the shilling depreciated by 9.04% against the USD which is double the 4.36% depreciation recorded in 2021. We expect the shilling to remain under pressure due to elevated global oil and merchandise prices, an ever-present current account deficit and the aggressive growing government debt.