This archive report was first published on 24 May 2020.
COVID-19 Pandemic: A Global Economic Crisis ¶
As the COVID-19 pandemic continues to spread, its economic impact is being felt worldwide. The pandemic has occasioned unprecedented suffering to humankind and a massive downward spiral of the world economy.
According to the International Monetary Fund (IMF), the global economy is expected to contract by 3% in 2020, with a cumulative loss of over $9 trillion. This is a significant revision from the IMF's earlier forecast of 3.3% growth in 2020.
The pandemic has also led to a sharp decline in oil prices, with prices crashing to their lowest levels in 20 years. Stock markets are on a tailspin, and currencies are depressed. Several airlines and shipping companies are already in the red and could go under in the next few months if they are not handed lifelines.
Impact on Kenya's Economy ¶
Kenya's economy is not immune to the global economic downturn. The Central Bank of Kenya (CBK) has revised its annual economic prospects for the country from 6.2% to 3.4%. This could be a best-case scenario, given the unfolding external effects of the pandemic that are largely outside internal control.
Domestic demand is likely to shift to basic needs as households hold back on unnecessary expenditure to cushion themselves. Many organizations have already sent more than half of their staff on leave or to work from home, factors that are likely to significantly reduce overall productivity.
Shifting Demand and Market Structure ¶
The world is now largely interconnected, and Kenya's economy is likely to slow down significantly in the coming days. International markets for Kenya's tea and flowers are already down, and tourism numbers have reduced to near zero.
Government spending will inevitably shift from capital projects to interventions geared towards managing the pandemic and cushioning small businesses and low-income citizens. This is important because any other approach could further fuel the pandemic and risk social order.
Restricted Movement and Economic Activity ¶
However, maintaining a fair balance between managing the pandemic and preserving lives, through restricted movement and other initiatives, and allowing economic activity to thrive in order to preserve livelihoods and social order, will be a collective challenge.
It is noteworthy that Kenya's economy is largely supported by exports, and the pandemic has already led to a decline in exports. The country's economy is also heavily reliant on imports, and the pandemic has disrupted global supply chains, leading to a decline in imports.
