Increased confidence underpins economic recovery

Business news for Wednesday, September 30, 2020

Source: Goldstreet Business

2020-09-30

New data released yesterday by the Bank of Ghana indicates that the Ghanaian economy is on track to recover after suffering an unprecedented contraction of 3.2%, measured year-over-year during the second quarter of 2020.

The latest Composite Index of Economic Activity posted 3.6 percent year-on-year growth for the 12 months through July, a complete reversal of the index’s record 10.6 percent contraction for the 12 months through May. This indicates that the real growth of the Gross Domestic Product will also be positive for the period. The BoG CIEA measures changes in the amount of economic activity while economic growth, measured by the Ghana Statistical Service, tracks changes in the value of the economy as measured by GDP. While the two are by no means the same, they tend to move in the same direction. In fact, the first warning of the 3.2 percent contraction in GDP for the second quarter came from the 10.6 percent contraction in the CIEA through May.

However, according to the BoG, its survey shows that consumer spending, industrial electricity consumption and construction activities have reached pre-closure levels, while tourist arrivals and port and port activity are gradually increasing.

However, on the negative side, imports, exports, and private sector contributions to social security remain below pre-blockade levels.

It is important to note that the BoG Monetary Policy Committee chose to maintain the reference Monetary Policy Rate at 14.50 percent despite the fact that inflation remains above the target band of eight percent plus or minus two percent. percent (inflation in August was 10.5 percent) to support economic growth through relatively cheap and accessible credit for private companies.

The economic rebound is based on the improvement in the confidence of both companies and consumers, according to the latest surveys of both economic segments conducted by the central bank. The latest consumer confidence survey indicates that consumer confidence is recovering strongly and is currently above pre-lock levels.

Business confidence also increased, but has not yet reached pre-lock levels.

However, around 95 percent of the surveyed companies showed strong optimism, reflecting the improvement in the macroeconomic situation, the stability of the exchange rate, the reduction in the prices of inputs, the moderation of the rates of inputs. loans and the positive outlook for the industry.

The BoG also points to other indicators of economic recovery.

According to Dr. Ernest Addison, Governor of the BoG: With the exception of the workplaces groups, which still remained below the baseline, all other indicators incorporated in the Google mobility data: commuting and traveling, visits to supermarkets and pharmacies and residential activity have moved above the baseline. . “

Furthermore, the Ghana Purchasing Managers Index, which measures the rate of inventory accumulation by managers of private sector companies and measures the dynamics of economic activity, points to a steady increase in business activity since April 2020.

Instructively, the BoG now recognizes that Ghana can achieve GDP growth for 2020 as a whole of between 2.0% and 2.5%. This is more than double the 0.9% growth projected by the Ministry of Finance in July.

Dr. Addison admits that the adverse effects of COVID 19 may have been overestimated by economic analysts, policy makers, and business regulators.