UPDATE 2-Kenya economy to grow 5.0 pct in 2012 -W.Bank

Thu Jun 2, 2011 3:06am EDT

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* Investment in telecoms, infrastructure to help

* Drought, fuel prices seen weighing 2011 activity

(Adds details, background)

By George Obulutsa

NAIROBI, June 2 (Reuters) - Kenya's economy is seen growing by 5.0 percent in 2012 from 4.8 percent this year, as improved infrastructure including investment in telecoms begin to bear fruit and external conditions improve, the World Bank said on Thursday.

The east African country's economy is under pressure from fuel and food price-driven inflation which have led to rises in interest rates, and analysts say political uncertainty ahead of next year's general election is also weighing it down.

"For 2012, we project a growth at 5.0 percent assuming a more favourable external environment and a peaceful run-up to the general elections," World Bank said in its latest economic update report on the country.

"There are a number of ... factors which will benefit Kenya in the medium-term and already bear fruits in 2012. These include improved infrastructure services, the spill-over effects of the ICT revolution and an acceleration on south-south integration."

The bank trimmed its 2011 growth forecast from 5.3 percent, as high food and fuel prices and drought eat into the output of east Africa's biggest economy.

"Kenya will navigate through another economic storm in 2011. This will reduce growth to a projected 4.8 percent," Wolfgang Fengler, World Bank lead economist for Kenya said in a presentation of its economic update report on the country.

"There are questions on how strong the rainy season will be this year," said Johannes Zutt, World Bank country director for Kenya.

Kenya's economy relies on agriculture -- it is the world's top exporter of black tea -- as well as tourism, manufacturing, financial services, transport and telecommunications.

The country is recovering from a bloody aftermath to elections in early 2008, as well as drought and the global financial crisis that all hammered growth in 2008 and 2009.

The post-election violence killed more than 1,200 people and uprooted hundreds of thousands from their homes. A coalition government was formed to end the violence, but it remains fragile and fears of unrest in 2012 linger.

Kenya's planning ministry forecasts the economy will expand by 4.2 percent this year, putting it at odds with Finance Minister Uhuru Kenyatta who last month predicted growth of 6.1 percent.

The International Monetary Fund has plumped for 5.4 percent.

Economic analysts attributed the variance in this year's growth forecasts to uncertainty about rainfall.

Adequate rains would boost the agriculture sector, which accounts for a quarter of gross domestic product, and result in increased food supplies, hence lowering inflationary pressures in east Africa's biggest economy.

The bank said it expected inflation to also rise in 2011, driven by higher food and fuel prices. Kenya's central bank raised interest rates for the second time this year earlier this week. (Additional reporting by Beatrice Gachenge; Editing by Richard Lough and Patrick Graham)

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