New data released by the Bank of the Ghana a week ago suggests that Ghana’s ongoing economic rebound may have reached new heights during the first half of 2021 after the economy suffered its first recession in three and a half decades during the second and third quarters of 2020. The central bank’s Composite Index of Economic Activity, CIEA recorded an increase of 33.1 percent for the 12 months up to May, its biggest recorded year on year increase to date.
Although BoG Governor Dr. Ernest Addison, in explaining the data in a press statement following the latest meeting of the Bank’s Monetary Policy Committee, admitted that the unprecedented rise in the index was in part due to base drift effect – following a sharp contraction during the corresponding period of last year due to the effects of COVID 19’s initial outbreak – it nevertheless reflects a sharp increase in economic activity which is expected to translate into significantly accelerated actual economic growth when the Ghana Statistical Service eventually discloses its growth data for the second quarter, expectedly sometime next month.
Instructively the CIEA’s unprecedented 10.2 percent contraction recorded for the 12 month period up to May 2020 translated to a 3.2 percent economic contraction for the second quarter of last year. Although the much smaller increase in the CIEA for the third quarter of the year unexpectedly still translated into another economic contraction, it was much smaller at 1.1 percent and statisticians point out that this in actual fact supports the quantitative correlation between the index and the GSS economic growth computations.
Economists, using basic back of the envelope quantitative correlations, point out that this would imply that the latest 33.1 percent increase on the index suggests a close to 10 percent economic growth rate for the second quarter of this year. However most economists concur that such speculative computations are both overly simplistic and overly optimistic; but nevertheless they also agree that it shows that Ghana’s economic growth will not only accelerate beyond the 3.1 percent achieved for the first quarter of this year, but will most likely exceed the 5.1 percent targeted for the full year 2021 at last week’s mid-year budget review which would be crucial for achieving that full year target, having fallen short during the first quarter.
Indeed the first quarter outcome was disappointing, falling short of the 3.3 percent achieved for the last quarter of 2020 when the rebound actually began after two consecutive quarters of economic contraction.
While the CIEA tracks changes in the level of economic activity, economic growth as measured by the GSS measures changes in the value of the economy resulting from such economic activity. Although differently measured, both tend to move in the same direction with some degree of quantitative correlation.
Actually, the marginal upward revision in government’s economic growth projections for the full year, reflect the optimism derived from the latest CIEA as well as other recently emerged data. Some economists now believe that government may have erred on the side of caution by only revising its full year growth projections upward by just 100 basis points. The most optimistic projections now go as high as 7.0 percent although this is by a small minority.
The main worry is the ongoing third wave of COVID 19 infections fuelled by the highly contagious delta variant which has arrived in Ghana at a time that the general populace is showing clear signs of weariness with regards to complying with COVID 19 protocols. These worries are intensified by Ghana’s emergent problems with regards to securing vaccinations. While government regularly announces the promise of new supplies, the reality on the ground is that even many of those who have received their first doses have still not got their second doses. It is instructive that a week ago President Nana Akufo-Addo, in a televised broadcast to the nation, announced some new social restrictions on public gatherings, these coming at a time that in rich jurisdictions that have had much wider access to vaccinations, herd immunity is being achieved so that even sports stadiums are filling up with spectators that no longer need to wear face masks.
Nevertheless there is genuine hope that rising economic activity is translating into considerably higher economic growth rates.
According to the BoG Governor, “The sharp increase (in the CIEA) broadly reflects some base-drift effects as well as improvement in industrial production activities, domestic consumption, pick up in import activities, steady rise in construction activities and a rise in air-passenger arrivals, during the period.”
Furthermore he has affirmed that even though the CIEA data covers the period up to May, more recent data confirms a continuation of the economic rebound since then. He confirms that: “The Ghana Purchasing Managers Index, which gauges the rate of inventory accumulation by managers of private sector firms and measures dynamics in economic activity, pointed to some sustained levels of business activity in June 2021.”
The Association of Ghana Industries also has confirmed that its latest business barometer computations also indicate that growth in economic activity is accelerating. Although the quantitative findings have not been made public, its chieftains have revealed that its members, polled in the latest survey are generally reporting bigger inventories, bigger demand for their products and services, and bigger consequent sales.