June 18 (Bloomberg) -- Consumption should drive Kenya’s economy to grow at 5 percent in 2012 and 2013, although expansion could slow to 4.1 percent if global financial shocks and domestic political risks materialize, the World Bank said.
Expansion in East Africa’s largest economy eased to 4.4 percent last year, the Washington-based lender said in a statement handed to reporters today in Nairobi, the capital.
“More than ever, Kenya’s economy is out of balance,” the World Bank said. “Kenya needs to rebalance its economy, increase savings and create more incentives for exports.”
Political uncertainty before next year’s elections may stifle investment, after deadly violence at the last vote in 2007, while the debt crisis in Europe could crimp tourist arrivals, cut remittances and weaken demand for exports from the world’s largest grower of black tea, it said.
Kenya’s economy is showing signs of rebounding after good rains this year eased drought and boosted agriculture, an industry that generates a quarter of output, and helped curb inflation that accelerated to a peak of 20 percent in November.
Six months of slowing inflation has increased scope for the central bank to lower its policy rate from a record 18 percent and turn its attention to spurring economic growth. A sharp interest-rate reduction may also reverse foreign exchange inflows and cause currency volatility, the World Bank said.
The shilling, which has rebounded from a record low of 106.75 per dollar, was trading 0.4 percent stronger at 84.60, by 9:57 a.m. in Nairobi, heading for its highest closing level since June 7, according to data compiled by Bloomberg.
Kenya needs to spur manufacturing investment, remove regulatory burdens and cut regional trade barriers to narrow its current account deficit, the World Bank said. The gap widened to 13.1 percent of GDP last year, one of the worst in the world, and is forecast to hit a record 15 percent in 2012, the bank said.
The government should also introduce policies to control consumption-led growth and encourage savings and investment to improve the trade deficit, the World Bank said.
“Kenya is consuming above its means,” Johannes Zutt, the bank’s country manager, told reporters today in Nairobi.
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