Output growth at four-month high

  • Sharper increases in activity and new business
  • Material shortages cause further issues with supply
  • Strong optimism signalled again

Signs of demand improving supported stronger growth momentum in Ghana’s private sector during February, with rates of expansion in both output and new orders accelerating and new staff being hired at the fastest pace for a year.

While the coronavirus disease 2019 (COVID-19) pandemic continued to hamper operations, companies remained optimistic that these effects will wane over the coming year, leading to rises in new business and activity.

The headline seasonally-adjusted Ghana PMI increased to 52.5 in February, up from 51.2 in January and pointing to a solid improvement in business conditions that was the strongest in three months.

The health of the private sector has improved in each month since August last year. New orders rose for the ninth month running in February, amid reports of further gradual improvements in customer demand. The rate of growth was solid, and quickened to the fastest since last November. These improvements in new orders led to a rise in business activity, again at a stronger pace than seen at start of the year.

Rising workloads encouraged companies to expand their staffing levels, often by filling previously vacant positions. The rate of job creation ticked higher and was the most marked for a year.

Greater operating capacity enabled firms to lower their backlogs of work for the first time in seven months, although the rate of depletion was only marginal as some respondents noted that material shortages prevented them from completing projects.

Material shortages also contributed to a slowdown in the pace of expansion for purchasing activity, which increased the least extent in the current seven-month sequence of growth.

Where input buying rose, this was generally linked to higher new orders. Where purchasing was undertaken, companies had to contend with longer suppliers’ delivery times again. These difficulties in securing inputs meant that inventories decreased for the third month running.

Purchase costs continued to rise sharply in February, with rate of inflation the second-fastest in 21 months.

The aforementioned material shortages contributed to higher purchase prices, with irregular import deliveries adding to these issues. Rising freight costs and higher prices for COVID-19-related products such as sanitiser and face masks were also mentioned.

Staff costs meanwhile increased marginally. Companies raised their output prices in response to higher purchase costs. Charges increased solidly, albeit at the slowest pace in three months.

Hopes that the COVID-19 pandemic will have a reduced impact on the economy over the coming year, as restrictions are eased, supported optimism that activity will increase. Close to three-quarters of respondents predicted a rise in output, with the level of positive sentiment remaining marked despite easing slightly from January.

Commenting on the latest survey results, Andrew Harker-Economics Director at IHS Markit said: “There is a sense of positivity around Ghana’s private sector at the moment, according to the PMI data for February. The recent gradual improvements in client demand continued; and with the first COVID-19 vaccines arriving in the country, business optimism in the 12-month outlook appears justified. IHS Markit currently forecasts GDP to rise 1.5% during 2021”.

Survey methodology

The IHS Markit Ghana PMI is compiled by IHS Markit from responses to questionnaires sent to purchasing managers in a panel of around 400 private sector companies.

The panel is stratified by detailed sector and company workforce size, based on contributions to GDP. The sectors covered by the survey include agriculture, mining, manufacturing, construction, wholesale, retail and services. Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month.

A diffusion index is calculated for each survey variable. The index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses. The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease.

The indices are then seasonally adjusted. The headline figure is the Purchasing Managers’ Index™ (PMI). The PMI is a weighted average of the following five indices: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stocks of Purchases (10%).  For the PMI calculation, the Suppliers’ Delivery Times Index is inverted so that it moves in a comparable direction to the other indices. Underlying survey data are not revised after publication, but seasonal adjustment factors may be revised from time to time as appropriate – which will affect the seasonally adjusted data series.

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