Business confidence drops third consecutive time in 2018

Ken Ofori-Atta, Finance Minister

The confidence of businesses within the economy, as measured by the periodic survey of business owners and managers has yet again fallen – for the third consecutive time running this year. This is according to Bank of Ghana’s (BoG) latest Business Confidence Survey data released on Friday.

The survey, which forms part of the real sector indicators, revealed that  the central bank’s business confidence index as at October this year, had dropped to 95.1 percent from the 99.9 percent recorded in August and 101.4 percent in the first six month of the year.

The survey showed a sharp decline in confidence from August to October, represented by a 4.80 percentage points decline in the index which was considerably steeper than the decline recorded from June to August which stood at -1.4 percentage points.

This economic indicator measures the amount of optimism or pessimism that business managers feel about the prospects of their companies, as well as providing an overview of the state of the economy.

AGI Qtr. 3 Business Barometer

Corresponding to this data is the Association of Ghana Industries (AGI) business barometer for the Third Quarter of 2018, which also showed a correlating sharp decline in business confidence from 104.8 percent to 95 percent, representing a 9.35 percentage points drop.

This development, according to the AGI is a clear indication that business are suffering.

The Association indicates that the cedi’s significant depreciation against major international trading currencies which continued into the second half of the year, has created some uncertainties in the business arena regarding the stability of the cedi. Indeed it has led to both significant increases in business operating costs, especially for enterprises that are largely import dependent and has complicated product pricing decisions, with some businesses opting for inventory replacement pricing which tends to be self-fulfilling with regards to fanning inflationary expectations.

Consumer Confidence

Consumer confidence as measured by the BoG’s consumer confidence index, as at October this year has also eased consistently to reach 92.3 percent down  from 98.1 percent and 102.2 percent recorded for August and June, respectively.

The Consumer Confidence Survey reflects prevailing consumer sentiments as expressed by households and likely developments in those sentiments for the months ahead. Consumers are worried both by fears of rising inflation in the face of cedi depreciation and fuel price increases, and by perceptions of illiquidity at the household level which is adversely affecting their perceived purchasing power.

Both business and consumer confidence, as measured by the BoG’s index’s rose dung the second half of 2017.

Instructively, the consistent falls in both business and consumer confidence through this year reflect both lower economic activity and slower actual economic growth as compared to last year.. The BoG’s Composite Index of Economic Activity increased, in real terms by 4.2% year on year up to September this year, compared with a 7.0% increase over the previous 12 month period. Similarly real Gross Domestic Product growth was 5.4% year on year as at June 2018, down from 11.1% over the previous one year period, while excluding oil it was 5.0%, down from 6.7% over the previous 12 month period.

By Joshua W. Amlanu