THE GLOBAL ECONOMY
According to Dr. Jean Michael Six of S&P Global, international trade is being driven by emerging economies. A number of countries have reached their potential and their economies is slowing down. For instance, in Brazil Gross Domestic Product (GDP) is reported to have contracted by 7 percent in 2016. On the other hand, China’s economy is said to have reached its “First World” levels and hence there is little room for improvement. In other words, it is missing the “fiscal space” for debt-fueled growth.
State of Affairs in the USA
In the United States of America, the Donald Trump’s regime inherited a stable economy which is recovering in its eight year since 2009 recession. At this point, in the USA business confidence is higher and businesses are hiring once again.
President Donald Trump has been in office for many days. Let’s look at his first 150 days. He had promised fiscal reforms which have been delayed. The same fate faces the corporate Tax Reforms. Infrastructure program is delayed too. Business regulation has been slow and what we have seen is frequent changes of the heads of various agencies.
The USA labor Market
It’s estimated that 210,000 jobs were created in the USA in July 2017. At this point experts and analysts have stated that the domestic labor market is at full employment.
Up to this point the Euro-zone has just experienced two recessions. The first one was in 2009/2010 and another one in 2012. Germany economy is leading in the economic recovery. In this great European country, imported inflation is reported to be close to zero and they are operating a surplus current account.
The New Bond Conundrum
Real time interest rates have been declining since 1981 for United Kingdom and Germany. The first bond conundrum is also called the savings Glut story. The term “conundrum” was first used by the former Federal Reserve Bank president Alan Greenspan. Bernanke later on came us with the phrase “The Global Savings Glut.” This is a situation where the global economies rushed to make savings. The Second Conundrum involved the Shortage of Safe-Haven Assets.
Trade Globalization Vs Financial Globalization
Trade Globalization has made the world more multipolar. Financial Globalization on the other hand has made the world more unipolar. It’s true that financial globalization grows as globalization grows.
In a meeting organized by S&P Global Gardner Rusike provided in-depth insights on the post elections and what is next for Kenya. He took a dive into Kenya’s sovereign Rating Outlook. He pointed out several factors which are considered when a country is rated. These include:
- Institutional Assessment
- Economic Assessment
- External Environment
- Fiscal Assessment
- Monetary Assessment
On April 2017 Kenya was rated B+ which is a stable condition. The analysts noted that most of the African economies are commodity driven. South Africa had a better score (B+B+) compared to Kenya. The Kenyan government aims at boosting both fiscal and economic stabilization.
Real GDP Growth
GDP growth per capita in Kenya is higher than that of Zambia. In fact, Kenya has maintained a higher growth momentum.
The public sector development has had a huge contribution to infrastructure development. In terms of Net Debt/GDP, Kenya is only second to Ghana.
It is important to note that Kenya as a country did not receive debt relief which some of the African countries got.
Public Debt Serving
Servicing public debt has an impact of reducing the amount of money available for spending on essential services. For instance, if a country is spending 20-30 per cent of her revenues on servicing public debt then the impact is greater.
In Kenya, there is a public loan which is coming to maturity in October, 2017. Industry analysts are watching to see how the Kenya national treasury will handle it. Remember servicing loans is mandatory. Public debt/Gross Domestic Product is an important factor in Kenya’s Macroeconomics.
There is need for actors in banking industry to research on debt/GDP ratio and determine how it will affect access to basic services in Kenya.
According to analysts form S&P Global, Kenya’s exchange rates have been more stable compared to those of Ghana and Zambia. This may be due to huge amounts of Foreign Direct Investments (FDI) and external borrowing.
In fact experts have stated that Kenyan shillings is among the least affected by depreciated among her peers. Despite the good things we have said, we have noted that interest rate cap on banks has been dragging on credit. In addition to that, some of the political decisions made by countries have had an impact on the monetary policy. S&P Global predicated that, Kenya’s rating may be lower if political climate flared up.
According to Eva Murigu the researcher at the Standard Chartered, the USD-KES pair is affected by seasonal factors such as Valentine. At this time countries around the world order for Kenyan flowers. That way Kenya attracts foreign exchange reserves. The Central Bank interventions through open-market operations also have an effect on foreign currency reserves.
Analysts have pointed out that the recent food imports from Brazil or South Africa had a huge impact on current account balance in Kenya.
Nairobi Securities Exchange (NSE)
The NSE has been touted as being a bright spot which has rallied from its lowest point in Feb/March. It has to be noted that the equities market is easily affected by the fluctuations at the global markets.
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