COVID-19 Impact Analysis: Kenya Household spending to fall by 50%

Expenditure by Kenyan households and businesses is set to fall by 50 percent this year due to interference caused by coronavirus, global firm McKinsey & Company report says.

The report notes that the reduced spending by consumers might shrink to 1.9 percent from 5.2 percent, to be the biggest loss to Kenya’s Gross Domestic Product (GDP).

Meaning Kenya’s GDP growth rate could fall by five percent, which turns to an output loss of $10 billion (Sh1 trillion).

The report indicates that a fractional economic impact will see the GDP reduce by $3 billion (Sh315.6 billion) even after factoring in the recent locust invasion,

The report presented four scenarios to gauge the impact of COVID-19 to Africa’s economies that could experience a loss of between $90 billion and $200 billion (Sh9.5 trillion and Sh21 trillion) in 2020.
“In two out of four scenarios, Kenya could potentially face a contraction. The biggest impacts in terms of loss to GDP are reductions in household and business spending (40-50 percent),” said the report dubbed COVID-19: Africa Economic Impact.

Other major effects in terms of loss to Kenya’s Gross Domestic Product (GDP) include disruption to supply chain for key inputs in machinery and chemicals (about 30 percent) and tourism (about 20 percent).

However, the report notes that Kenya could likely “experience a notable cushion” of $1.5 billion (Sh157.8 billion) from reduced prices on its import bill.

Future economic implications for African countries cited by the report include pressure on interest rates and currency devaluation, rising deficits and increase pressure on debt markets, limited access to hard currency and reduced tax revenues.

The report further said most businesses, many of which are SMEs, face closures and bankruptcies.