Continuous growth of liquidity levels in the Ghanaian economy alongside faster growth in bank credit to the private sector are stimulating strong increases in economic activity in the country; and this indicates an acceleration in the country’s economic growth rate compared with last year.
Although the annualized growth in total liquidity (measured by M2+) recorded a drop to 18.5 percent in April 2019 from 21.6 percent in March 2019, this still indicated faster growth in liquidity than the 17.5 percent recorded in April 2018.
According to the Bank of Ghana’s summary of macroeconomic and financial data for May 2019, growth in M2+ remained generally stable over the 12-month period to April 2019, although the growth rates reflect continuing strong expansion in economic activity.
Importantly, economic activity, as measured by the BoG’s Composite Index of Economic Activity (CIEA), tends to generally correlate economic growth as measured by real Gross Domestic Product growth. Over the 12 month period up to March 2019, the CIEA rose by 4.0 percent in real terms indicating a rebound in economic growth from last year’s slow down; the index grew year on year by just 2.9 percent in real terms in March 2018, down from 4.4 percent over the previous 12 month period. Instructively, the strong growth in the CIEA reflected in economic growth of 8.5 percent for 2017 and the slow down in the first quarter of 2018 was the harbinger of a slow down in actual economic growth to 6.3 percent in 2018.
Economists now expect the acceleration in growth of the CIEA during the first quarter of this year to propel economic growth towards government’s target of 7.6 percent for 2019.
The Governor of Bank of Ghana (BoG), Dr. Ernest Addison has explained that the current growth in total liquidity has been supported by expansion in net foreign assets, reflecting the impact of the Eurobond inflow.
Annual growth in reserve money however slowed to 7.9 percent in April 2019 compared with 14.8 percent annual growth in April 2018.
All the same, economists see the positive liquidity growth as important, with enterprises becoming better placed to expand output and households receiving more liquidity with which to effectively demand the increased output of those enterprises.
Essentially, increased liquidity is being channeled into credit driven increased production and consumption as the annualized private sector credit growth has gained some momentum. This is due to the improved liquidity position of the banks on the back of the recapitalization exercise.
Annual growth in private sector credit was up by 19.8 percent in April 2019, measured in nominal terms, compared with 5.6 percent growth in the same period of 2018. In real terms private sector credit expanded by 9.4 percent
On a year-to-date basis, private sector credit recorded a 5.1 percent growth in April 2019, compared with a contraction of 4.0 percent last year.
Furthermore, the Bank’s latest credit conditions survey showed a net easing of credit stance on loans alongside increased demand for loans by enterprises and households.