Covid-19 will affect the economy in ways we can never imagine

Monday, April 6th, 2020 00:00 |
Health Cabinet Secretary Mutahi Kagwe addresses the press at Afya House yesterday. He announced a fourth case of coronavirus. Photo/PD/John Ochieng


This global pandemic will change us in ways we are not sure of today.  The number of infected globally has increased to more than 1.2 million and over 64,000 deaths so far. 

In Kenya, the numbers have been on the rise with 126 infected. Like the rest of the world, Covid-19 has drastically reshaped Kenya’s economic outlook.  

Domestic demand, which was already fragile, will wane even as supply shocks impair productivity across many sectors.

This could degrade economic growth to just about 2.3 per cent should the crisis persist through the second quarter of this year, from our in-house initial forecasts. 

Companies’ effective capacity is falling fast, and export markets are quickly shrinking.

Tougher guidelines on freights, border tensions with Uganda and potentially other regional partners and expected decline in domestic and regional demand for some goods is hampering trade.

Demand for non-essential goods has dried up hurting the retail and wholesale sector.  

Financial markets have seen exceptional volatility in recent weeks. The Nairobi Securities Exchange is not exempted! 

Valuations have fallen sharply with more than 20 per cent decline in stock prices. 

At the same time, global risk aversion and the potential impact of the crisis on export earnings and remittances could further weaken the shilling outlook already reeling from global risk aversion that has seen a significant appreciation in the US dollar.

Bond markets, though considered safe-havens, are themselves reeling from the global thirst for liquidity and flexibility that these levels of uncertainty bring forth.

The aviation industry has come down crashing. It is estimated by the Global Centre for Aviation that all airlines will be bankrupt by May 2020 if the pandemic prolongs.

IATA estimates the industry may lose up to Sh12.2 trillion in revenues by June.

Kenya Airways is grounded and already seeking the government’s support to stay afloat. The tourism, service and hospitality sectors have come to a standstill impacting thousands of households. 

The manufacturing sector, which was already suffering from the shocks from the Sino-US trade war, is caving in under the weight of fresh supply chain disruptions from prolonged and unscheduled production shutdown as well as labour market disruptions from the containment measures. 

Kenya’s imports have dropped by more than Sh60 billion so far this year, mostly in industrial supplies and goods for household use. We can expect a further drop. 

Services, which had supported global demand and labour markets, are also wobbling as demand sharply wanes due to increased uncertainty and reduced incomes.  

Initial assessment of job markets by the International Labor Association shows almost 25 million jobs may be lost globally, higher than the 22 million jobs lost during the 2008/9 global financial crisis.

Underemployment is also expected to increase as working hours and wages reduce.

In Kenya, according to our in-house economists, more than 20,000 formal jobs may be lost this year, with many more layoffs expected in the informal sector. 

The government is dialing up financial support to cushion people and businesses to an unparalleled degree. 

As central banks reduce interest rates sharply and reintroduce or increase bond purchases, governments are piloting other unorthodox measures to supplement income losses and to firms to ensure they sustain their payroll. — The Writer is NCBA Group managing director.

More on Economy and Policy