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Management Discussion and Analysis

BUSINESS ENVIRONMENT of commodity prices and implementation of reforms. A drop in
commodity prices, steeper-than-anticipated global interest rate
Global Economic Outlook
increases and inadequate efforts to ameliorate debt dynamics could
The global pick-up in economic activity that started in the second half set back economic growth. South Africa is forecast to tick up to 1.1%
of 2016 gained further momentum in the first half of 2017. According growth in 2018 from 0.8% in 2017. Nigeria is anticipated to accelerate
to the International Monetary Fund (‘IMF’), growth is projected to rise to a 2.5% expansion this year from 1% in the year just ended.
over 2018 and 2019 in emerging markets and developing economies,
The Kenyan economy faced multiple headwinds in 2017 as a result of
supported by improved external factors - a benign global financial
which GDP growth is projected to dip in the coming years. A drought
environment and a recovery in advanced economies.
in the earlier half of the year, the on-going slowdown in private sector
Global output is estimated to have grown by 3.7% in 2017 (0.5% credit growth and a prolonged election cycle weakened private sector
higher than in 2016). Global growth forecasts for 2018 and 2019 demand, notwithstanding an expansionary fiscal stance. Nonetheless, Integrated Report
have been revised upward by 0.2% to 3.9%. The revision reflects reflecting the relatively diverse economic structure, these headwinds
an increased global growth momentum. For the two-year forecast were partially mitigated by the recovery in tourism, better rains in the
horizon, the upward revisions to the global outlook result mainly from second half of the year, still low global oil prices and a relatively stable
advanced economies, where growth is now expected to exceed 2% in macroeconomic environment.
2018 and 2019. This forecast reflects the expectation that favourable
Growth in the East Asia region is forecast to slip to 6.2% in 2018 from an
global financial conditions and strong sentiment will help maintain
estimated 6.4% in 2017 due to a structural slowdown in China; which
the recent acceleration in demand, especially in investment, with
is seen offsetting a modest cyclical pick-up in the rest of the region.
a noticeable impact on growth in economies with large exports.
However, risks to the outlook have become more balanced. Indonesia
In addition, the United States (‘US’) tax reform and associated fiscal
is forecast to grow to 5.3% in 2018 from 5.1% in 2017. Growth in the
stimulus are expected to temporarily raise US growth, with favourable
Southern Asia region is forecast to accelerate to 6.9% in 2018 from
demand spill overs for US trading partners, especially Canada and
an estimated 6.5% in 2017. Consumption is expected to stay strong,
Mexico, during this period.
exports are anticipated to recover and investment is on track to revive
In the IMF’s World Economic Outlook update for January 2018, the as a result of policy reforms and infrastructure upgrades. Setbacks
growth forecast in US has been raised from 2.3% to 2.7% in 2018 and to reform efforts, natural disasters or an upswing in global financial Statutory Reports
from 1.9% to 2.5% in 2019. The forecast has been revised up given volatility could slow growth.
stronger than expected activity in 2017, higher projected external
In the Middle East, growth slowed significantly in 2017 on the
demand and the expected macroeconomic impact of the tax reform,
back of a slowdown in the Islamic Republic of Iran’s economy after
in particular the reduction in corporate tax rates and the temporary
very fast growth in 2016 and cuts in oil production in oil exporting
allowance for full expensing of investment.
countries through March 2018 under the extended Organisation of
Growth rates for many of the Euro area economies have been marked the Petroleum Exporting Country (‘OPEC’) agreement. In 2018, growth
up, especially for Germany, Italy and the Netherlands, reflecting is expected to increase to 3.5%, mostly reflecting stronger domestic
the stronger momentum in domestic demand and higher external demand in oil imports and a rebound of oil production in oil exports.
demand. However, regional insecurity and geopolitical risks still weigh on the
outlook.
The Euro area recovery was expected to gather strength in 2017, with
growth projected to rise to 2.1% in 2017, before moderating to 1.9% India is expected to pick-up to a 7.3% GDP growth rate in Financial
in 2018. The increase in growth in 2017 mostly reflects acceleration Year (‘FY’) 2018-19 from 6.7% in FY 2017-18. The growth projection
in exports in the context of broader pick-up in global trade and for 2017 has been revised down to 6.7% (7.2% in IMF’s April 2017
continued strength in domestic demand growth supported by forecast) reflects still lingering disruption associated with the currency Financial Statements
accommodative financial conditions amid diminished political risk exchange initiative as well as transition cost related to the launch of
and policy uncertainty. the national Goods and Services Tax (‘GST’).
Growth in the United Kingdom (‘UK’) is projected to subside to 1.5% in In China, growth is projected to moderate to 6.5% in 2018 from 6.8%
2018. The downward revision to the 2017 forecast relative to the April in 2017. There is an expectation of expansionary policy mix to meet
2017 World Economic Outlook is driven by weaker-than-expected the target of doubling real GDP between 2010 and 2020.
growth outturns for the first two quarters of the year. The slowdown
The pace of expansion in Japan is expected to weaken to 0.7% in 2018
is driven by softer growth in private consumption as the Pound’s
from 1.5% in 2017, based on the assumption that fiscal support fades
depreciation weighed on household real income. The medium-term
as currently scheduled, private consumption growth moderates and
growth outlook is highly uncertain and will depend in part on the
the boost from 2020 Olympics-related private investment is offset by
new economic relationship with the European Union (‘EU’) and the
extent of the increase in barriers to trade, migration and cross-border higher imports and slower projected growth in foreign demand.
financial activity. Key risks to the global forecast are:
Growth in the Sub-Sahara region is anticipated to pick-up to 3.2% in I. In the near term, risks to the global growth forecast appear
2018 from 2.4% in 2017. Stronger growth will depend on a firming two-sided and broadly balanced. On the upside, momentum
Management Discussion and Analysis 91