NAIROBI, Oct. 10 (Xinhua) -- Kenya's rapidly recovering economy has the strength to resist the impact of the economic slowdown in the United States and Europe but key sectors could be strangled, the Central Bank of Kenya (CBK) has warned.
In its latest review of the market, the bank said key sectors of the economy are likely to feel the adverse effects of the slowdown in the United States and Europe but it might not have profound effects on the overall performance of the domestic economy.
The country's apex bank has also termed as an issue of "critical importance" the economic downturn in the United States and Europe and called for urgent measures to forestall such negative developments that might eventually have impact on the local economy.
The CBK's Monetary Policy committee said it is watching the crisis as an issue of importance but sees no need to be pessimistic about the challenges this might pose.
"The Committee agreed that a domestic response to the serious downturn in the international economic activity is of critical importance. Its view is that the domestic recovery is on track. However, possible risks exist that could see adverse international events stifling domestic economic resurgence," the CBK Governor Njuguna Ndungu said.
The bank chief said there was no need to worry about the financial crisis in the United States and Europe in the meantime. "We saw no reason to be pessimistic about the third quarter and the fourth quarter," Ndungu said in a statement sent to Xinhua.
The International Monetary Fund (IMF) officials recently visited Kenya on an economic review mission. During the visit early in October, the mission noted that the CBK had spearheaded efforts to transform the economy, leading to rapid recovery after the poll violence.
The IMF Executive Director in charge of Africa Group One constituency Peter Gakunu, who worked as Permanent Secretary in the Kenyan Ministry of Finance, said the effects of the U.S. economic slowdown were still muted but the indirect impact would be felt more severely in some sectors.
He said he was impressed with Kenya's efforts to turnaround the economy after the election violence and the capability to surpass the growth targets.
Kenya's economy, he said, was likely to feel the impact of the U.S. economic slowdown in the form of reduced foreign aid and reduced Foreign Direct Investment (FDI) inflows although these were still not directly clear.
"The government is watching, we are on high alert," Vice President Kalonzo Musyoka told Parliament on Thursday.
Musyoka said that acting finance minister John Michuki who is currently on a foreign trip will issue a comprehensive ministerial statement next week.
Economic analysts have said the Kenyan government should ensure that the financial sector remains vibrant and that liquidity is available to mitigate high loans default rates.
Kenya's economy, the victim of a vicious post-election battle in January, is making obvious signs of a faster recovery, but the CBK says the economy is not yet fully back on track.
The CBK said the economy has obviously made a major recovery in the second quarter, but not fully back on track.
Kenya's GDP for the second quarter rose to 3.2 percent compared to the negative 1 percent that it recorded in the first quarter during the post election period.
Kenya's top fiscal policy organ, the Monetary Policy Committee (MPC), an organ of the CBK which meets regularly to take pulse of the economic trends, said in its latest report issued on Oct. 2 that the economy was on a strong rebound.
"The Committee is optimistic that the worst of the economic crisis is over and the economy is on the rebound as has been articulated by previous bank (CBK) statements," Ndung'u said.
"However, it is noted the economy is not yet operating to its full potential," he added
According to statistics compiled by the Kenya National Bureau of Statistics (KNBS), a freshly upgraded arm of the ministry of Planning, the key sectors of manufacturing, wholesale and retail trade and the fishing industry performed better, showing a recovery.
But the statistics, analyzed by the CBK, showed that the manufacturing sector posted a growth of 2.8 percent in the second quarter, compared to 7.7 percent recorded in the same period last year, showing a slowdown in the manufacturing sector.
Agriculture, the key economic driver, recorded a 2.8 percent growth in the second quarter compared to 2.3 percent recorded during the same period last year, a sign of recovery after the post poll violence, which locked out hundred of thousands of farmers away from farms.
The CBK has expressed concern that the high inflation, which edged upwards to 28.2 percent in September compared to 27.6 percent in August constituted a risk for the overall growth projection for this year.
"High inflation remains a concern to the overall health of the economy and the bank's effort to inject stability into the market. As the MPC noted the risk of high inflation still looms large, threatening gains made on recovery," the CBK Governor reiterated.
