East Africa’s economic outlook under rising global pressure

East Africa is demonstrating resilience in the face of economic challenges, with Kenya's growth rate at 5.1 per cent and Rwanda at 7.0 per cent, while maintaining inflation within target levels. However, the region is facing concerns over thinning forex reserves, as the Nairobi Stock Exchange saw 3.3 billion shillings in outflows in the last quarter amidst rising global volatility. To gain more insights into the economic outlook for East Africa, CNBC Africa's Tabitha Muthoni sat down with Ronny Chokaa, Senior Research Analyst at Capital A Investment Bank. Chokaa highlighted the region's exposure to external shocks due to precarious national reserves levels. He pointed out that most East African countries, barring Tanzania, are struggling to meet the reserve adequacy standards, which can lead to uncertainties and potential currency depreciation. Uganda and Rwanda have been trailing below the required import cover threshold, indicating vulnerability to trade policy shifts and potential inflationary pressures. Chokaa emphasized the impact of trade policies on the balance of payments accounts, citing portfolio outflows and exchange rate pressures as key concerns. He warned of the risk of inflation spikes, particularly for import-dependent countries in the East African Community, such as those reliant on petroleum imports. Looking ahead, Chokaa discussed the potential impact of global pressures on central banks' policy decisions. While earlier expectations leaned towards rate cuts, uncertainties in trade policies have led to a more cautious approach, with markets now pricing in lower expectations of rate cuts and even potential rate hikes. He noted that central banks are likely to adopt a prudent stance, closely monitoring the global trade environment and its impact on the economy. Chokaa highlighted the importance of inflation staying within central bank targets, providing room for policy focus on economic growth. However, he acknowledged the delicate balance central banks face in deciding between rate cuts and inflation management amidst global market uncertainties. When comparing East Africa to other regional peers like Ghana and Nigeria, Chokaa noted differences in inflation rates and policy directions. East Africa has seen a moderation of inflation into single-digit territory, contrasting with strong double-digit inflation in West Africa. The divergence in policy rates reflects the varying economic conditions in the two regions. While Ghana and Nigeria have shown positive economic reforms reflected in exchange rate appreciations and debt restructuring, Chokaa emphasized the importance of these efforts in bolstering investor confidence and paving the way for potential policy rate adjustments. Despite the challenges posed by global economic uncertainties, East Africa's economic performance remains relatively stable compared to its West African counterparts. The region's resilience and potential for growth can be attributed to prudent policy decisions and ongoing reforms that aim to mitigate external shocks and sustain economic stability.