Kenya's two years of upward economic momentum continue, with lower interest rates and inflation boosting credit extension and domestic demand.

In 2005, robust perforance has been maintained by the outward-oriented sectors. Output of horticultural produce has expanded notably (39.4% y/y) while coffee volumes are also up over 30%.

Tourism earnings surged to a 15 year high of Ksh42.5 billion (US$556.3m) in 2004 (up 68%).

Global oil prices appear to be the main threat to Kenya’s strong growth momentum and are likely to hold down this year’s GDP growth to 4.7%. However the government’s expansionary 2005/2006 budget (with expenditure increasing by 18%) will boost growth nearer to 5%.

Inflation is expected to remain high at around 12%, slightly up on 2004’s 11.7%. Some food prices are expected to decline as a result of the VAT exemptions for maize, four, milk, kerosene and petroleum gas.

Standard Bank’s Economics Division consider the international oil price to be the main inflationary threat, which may push the numbers higher, although the high level of domestic credit extension (23% y/y) is also likely to contribute to inflationary pressures.

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