America Investment Group (AIG) has downgraded its projection for Kenya's economic growth this year despite IMF projection that the Kenya's economy shall grow by 2.5% in the same year.

During a press conference at a Nairobi hotel, Senior Investment Manager AIG Edward Gitahi said that the downgrade is due to the adverse water condition that has reduced agricultural output, rising energy cost and high level of inflation.

However, Gitahi said that AIG predicts that the economic growth rate could increase to 4% by next year.

This will be possible on account of stimulus spending by the government, enhanced credit extension by banks, a recovery of agricultural sector and easing inflation.

He went on to say that the positive growth for this year reflected the resilience of the economy that has weathered the severe shocks of post crisis, adverse weather and the effects of the global financial meltdown that happened last year.

"The economy is suffering from the effects of high levels of inflation that has suppressed personal spending, depressed global demand translating into weaker export growth and reduced private capital flows", he said.

He noted that the fund managers have maintained their projection for overall inflation at 20% for this year due to inadequate food supply, higher electricity costs due to the shift to more expensive thermal generation.

Speaking at the press conference, Senior Investment Manager Peter Wachira said the central bank had so far done a commendable job of containing interest rates from rising, government borrowing and the increased issuance of corporate bonds that led to the interest rates creeping upward.

"The low economic activity still poses a threat to government's realization of its revenue collection target .The government has a huge budget deficit with a number of stimulus programs awaiting funding," said Wachira.

AIG is an investment group that markets asset management products and services to various clients and was established in 1998.