Kenya: Hold the Jubileetion

A few weeks ago, we noted that the economy could prove awkward for President Kenyatta ahead of the August 8 election. While the latest opinion polls put the President's Jubilee Party ahead of his key rival Raila Odinga's National Super Alliance with 48% and 43% of the vote respectively, last week's inflation and GDP releases were less than perfectly timed.

The government will have been relieved at the fall back in headline annual inflation in June to 9.2% from a 5-year high of 11.7% in May. But it is still way above the upper edge of the target band (7.5%). Anyway, the backslaps will have been tempered by the dip in GDP growth in Q1 to 4.7% y/y. This looks like the start of a significant slowdown in activity and raises the risk that growth in 2017 could slow to around 4.5%, which would be the worst print since the financial crisis. Nonetheless, our central forecast of a 5.5% outturn remains intact for now.

Some of the Q1 softness reflects the weather-related decline in agricultural output. Nonetheless, the President will not be immune to critics who lay a significant proportion squarely at the door of his interest rate cap which has underpinned a contraction in private sector lending and activity. With 8% of voters still undecided, that 5 percentage point lead is softer than many observers believe.