Kenya experienced a difficult year in 2017, with political uncertainty and lower agricultural output due to drought. Inflation surged to +11.7% y/y in May 2017 just before the presidential election, exacerbating tensions. However, despite these problems the impact on growth was quite limited (+4.8% in 2017, after +5.8% in 2016), smoothed by fiscal stimulus which took the fiscal deficit to -9% of GDP in 2017. The precautionary IMF program that was supposed to end in March 2018 was just prolonged by six months. It should help the country to benefit from the recent improvement of many conditions that were subpar in 2017. First, the manufacturing PMI went to 54.7 in February 2018 (back to the April 2016 level), with both high new orders and output. Second, the interest rate cap that inhibited credit during the election period will be reviewed, on IMF request. Third, the dispute between the two presidential candidates ended smoothly last week. Final argument, the agricultural output is likely to normalize. As a result, growth should reach +6.5% in 2018, the highest rate since 2011.
