Looming global recession sparks fear in East Africa region

East Africans are second-guessing what the projected global recession in 2023 could mean for them, given the International Monetary Fund says about a third of the world will be in recession, led by the globe’s largest economies including the US, China, and Europe.

The recent growth projections by the international financier puts East African countries’ prospects for this and next year better than the global average, but analysts say the region will not be spared from the coming recession.

According to the IMF’s World Economic Outlook report released last month, the global GDP growth rate will fall from six percent last year to 3.2 percent in 2022, further decelerating to 2.7 percent in 2023 as a result of disruptions caused by the eastern Europe conflict.

East Africa’s economy is, however, predicted to grow by averagely 5.2 percent this year, dropping from 6.4 percent last year, but is expected to accelerate to 5.6 percent next year, highlighting a better performance than the rest of the world.

Harder economic times

But despite this, economists and financial analysts say citizens will need to brace for harder economic times next year as the looming recession could result in mass job losses, pay cuts, and a general slump in economic activity disrupting livelihoods.

“Most of the global economies are rapidly headed towards recession and Kenya is no exception,” said Rufas Kamau, the lead markets analyst at Nairobi-based financial markets broker FXPesa.

According to Mr Kamau, Kenyans should take necessary actions to save the most they can right now to be able to stay financially stable in the event of pay cuts, and improve their work efficiency to reduce their chances of retrenchment.

“With October inflation hitting 9.59 percent and the CBK raising policy rates to 8.75 percent, the environment for economic growth becomes tougher for Kenyans as the cost of loans becomes more expensive and consumer budgets continue being suppressed by inflation,” Kamau told The EastAfrican.

“Access to credit is still tough for the SMEs as banks prefer investing in government bonds since they bear less risk and the highest returns of any asset class in the country.”

Hold on to cash

American billionaires Jeff Bezos and Elon Musk have also been very vocal lately of the looming recession, similarly advising people to hold on to their cash instead of spending on luxuries such as cars, television sets or refrigerators.

Ken Gichinga, the chief economist at Kenyan analytics firm Mentoria Economics, agrees that Nairobi and the rest of East Africa might slump into recession next year, but the effect won’t be as fast nor as vast as it will be in the more developed markets.

“The effect will be immediate in the more developed western countries which have a wider credit market, meaning that rising interest rates will impact more people and entities almost instantly,” Mr Gichinga told The EastAfrican.

“In East Africa, the dynamics are a little different. Many people won’t feel the pain of rising interest rates immediately because they don’t rely on credit and the impact won’t be immediate.”

The rising interest and inflation rates and job losses resulting from the recession in the west, Gichinga said, will eventually trickle down to the region ultimately causing “what will feel like a recession.”

Tread carefully

According to both Kamau and Gichinga, while there is no certainty that East Africa’s economy will fall into a recession next year, people should tread carefully with their finances as there isn’t a guarantee the economy will evade the coming global recession either.

Eyes are now on policymakers to employ the best tools to stabilise economies to minimise the impact pf the looming recession and help save jobs and livelihoods as the coming recession sparks fear.

Kristalina Georgieva, the IMF managing director said countries should try to get the right mix of monetary and fiscal policy measures to overcome the threats posed by the global financial conditions.

“With monetary policy stepping on the brakes, fiscal policy should not step on the accelerator,” Ms Georgieva said last week while speaking at the Asia-Pacific Economic Cooperation leaders’ summit. “We should be in a mode of alert, not alarm, and develop policies to address these risks.”