Economy picking up pieces together…BoG now projects growth at 2.5%

Phillip Abradu-Otoo,Director of Research at the Bank of Ghana
  • Consumer and business confidence rise

New data has shown that the country’s economy is fast recovering from the ruins of the coronavirus pandemic as the Bank of Ghana’s Composite Index of Economic Activity (CIEA) has moved from contraction to growth with overall GDP for the year tipped at 2.5 percent.

The Summary of Economic and Financial data published by the central bank indicates that the CIEA, which measures business activities in the economy, has recorded 3.8 percent and 3.6 percent growth in June and July respectively, compared to a consecutive three-month contraction of 2.3 percent, 11 percent, and 10.6 percent respectively from March to May.

Furthermore, the data indicates that consumer confidence has also shot up impressively after the lock down and other restrictions on movements were lifted, recording 101 points in July compared to 84 points in March. The same positive development can also be said of business confidence as the index has also moved to 90.9 points from 77.2 points in the same stated period.

In an interview with the B&FT, Director of Research at the Bank of Ghana, Phillip Abradu-Otoo, said all these developments point to one direction – the economy is recovering from the havoc wrecked by the pandemic.

“Business confidence has bounced back and the businesses have indicated to us that among the reasons they have high confidence in the economy is the stability in the exchange rate; stability in the prices of inputs for production; and moderation in lending rates of the banks.

If we look at the high frequency data and the banking sector data, it clearly tells you that the economy has turned around. We are seeing a recovery in construction; a recovery in consumer spending; we are seeing that retail sales have exceeded pandemic levels; we also see that construction is in full swing mode; and we also see tourist arrivals is picking up slowly, and all these indicate that economic activities are picking up,” he said.

The latest central bank data comes as positive news considering the COVID-19 Local Economic Tracker data gathered by the Ghana Statistical Service in May and June showed a horrifying picture of how the pandemic shattered the private sector. According to that data, there was significant decline of sales in about 90 percent of local businesses surveyed in 2,770 localities, and about 72 percent of businesses experienced a decline in production.

Despite the positive development, import and export activities, according to the Bank of Ghana data, continue to remain lower than the pre-pandemic levels. In the first eight months of the year, total export has contracted by 9 percent year-on-year while that of imports also followed in the same direction with 9.2 percent contraction.

This, Mr. Abradu-Otoo says, is still a challenge to the recovery plan but remains upbeat that things will normalise in these two sectors with the passage of time.

“What is still a challenge is that the weak external demand is still impacting negatively on our exports and as a result it is still below the pre-pandemic levels. Imports are also below their pre-pandemic levels. We also see some stickiness in labour market conditions, meaning that firms are not hiring as fast as they laid-off. But, going ahead, we think these things will recover slowly,” he said.

The Bank of Ghana has further projected that, contrary to other projections that the economy may contract at the end of the year – as it already showed such symptoms with its second quarter abysmal performance of -3.2 percent, it will see growth of 2 to 2.5 percent.

“On the real economy, despite the contraction in the second quarter, the indication is for improved growth outturn in the third and fourth quarters. Leading indicators of economic activity point to a recovery. A sustained level in consumer and business confidence, broad-based growth in the indicators of the CIEA are all supportive of positive growth conditions in the outlook. Following from the above, it is estimated that growth in 2020 will be between 2 and 2.5 percent,” the bank’s monetary policy statement stated.

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