The latest World Bank economic report on Kenya states that Kenya’s economy is gradually recovering from last year’s shock and is expected to grow at 5 percent in 2012. The report though notes that the economy remains vulnerable to domestic and shocks that may reduce growth to 4.1 percent.

Johannes Zutt, World Bank Country Director for Kenya states that Kenya’s per capita income has exceeded US$800 for the first time. This will give Kenyans an opportunity to enjoy better standards of living as the economy progresses towards middle-income status in the coming future. He though notes that the challenge for the government, particularly in an election year, is to continue to run the economy well, to support private sector efforts to increase manufacturing and exports and to remove bottlenecks to regional trade.

The report projects that inflation will remain below 10 percent during the second half of 2012, from a high of nearly 20 percent earlier in the year. Interest rates are also expected to fall and the exchange rate to return to “more competitive levels”, factors that will spur economic activity. Kenya’s debt level has also fallen below 45 percent of the Gross Domestic Product (GDP).

Jane Kiringai, World Bank’s Senior Economist for Kenya, notes that Kenya is living beyond its means and it’s time it use’s policy tools to increase savings and exports. She notes that structural weaknesses, including a widening current account deficit pose a significant risk to Kenya’s economic stability. Another oil price shock, poor harvest, or contagion in the Euro zone could easily create renewed economic turbulence and reverse the recent gains.

Click here to read more of the World Bank report summary.