New data released by the Bank of Ghana yesterday indicates that Ghana’s economy is on course for a rebound after suffering an unprecedented 3.2 percent contraction, measured year on year during the second quarter of 2020.
The latest Composite Index of Economic Activity recorded year on year growth of 3.6 percent over the 12 months to July, a complete reversal of the record 10.6 percent contraction recorded by the index for the 12 months up to May. This indicates that actual Gross Domestic Product growth will be positive for the period as well.
The BoG ‘s CIEA measures changes in the quantum of economic activity while economic growth, as 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. Indeed the first warning of the 3.2 percent contraction in GDP for the 2nd quarter came from the 10.6 percent contraction in the CIEA up to May.
According to the BoG however, its survey shows that consumer spending, industrial consumption of electricity and construction activities have all reached pre-lock down levels, while tourist arrivals and port and harbor activity are gradually edging upwards.
One the downside however, imports, exports and private sector contributions to social security remain below pre lock down levels.
Importantly, the BoG’s Monetary Policy Committee chose to retain the benchmark 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 (inflation for August was 10.5 percent) in order to support economic growth through relatively cheap and accessible credit for private enterprise.
The economic rebound is being underpinned by improving confidence from both businesses and consumers according to the latest surveys of both economic segments by the central bank. The latest consumer confidence survey indicates that consumer confidence is bouncing back strongly and is currently above pre lock down levels. Business confidence also increased but is yet to match pre lock down levels. However about 95 percent of businesses surveyed showed strong optimism, reflecting the improving macroeconomic condition, stability in the exchange rate, lower input prices, moderation in lending rates and positive industry prospects.
The BoG also points to other indicators of an economic recovery. According to Dr Ernest Addison, the BoG ‘s Governor: With the exception of workplace clusters, which still remained below baseline, all other indicators embodied in the google mobility data – commuting and travelling, visits to supermarkets and pharmacies, and residential activity have moved above baseline.”
Furthermore, the Ghana Purchasing Managers index, which gauges the rate of inventory accumulation by managers of private sector firms and measures dynamics in economic activity, points to a steady rise in business activity since April 2020.
Instructively, the BoG now reckons that Ghana can achieve GDP growth for 2020 as a whole of between 2.0 percent and 2.5 percent. This is more than double the 0.9 percent 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.