ECONOMIC OUTLOOK: Growth estimates shrouded by severe global risks  

The Rand Merchant Bank (RMB)

Rand Merchant Bank (RMB), the corporate and investment banking arm of FirstRand Bank Limited – of which First National Bank Ghana is also a division, says the negative effects of the Russia-Ukraine war continue to reverberate throughout Africa’s economies. Coupled with the lingering effects of the COVID-19 pandemic, this is adding to higher oil and food prices.

Significant price increases and supply-side challenges have been the norm since the beginning of the year. Wheat and other cereal prices rose sharply, and with the expectation of higher inflation, businesses have already increased their prices for goods and services.

Massive disruptions over the past two years due to the pandemic resulted in business input costs increasing by 10% to 15%. Further input costs should be expected this year as the global economy has not re-opened fully. China is still restricting movement as a result of the pandemic, and the war is affecting trade in Europe.

Growth estimates for this year are shrouded by severe global risks, such as the Russia-Ukraine war, higher global interest rates, and tepid demand, given the latent effects of the pandemic. Domestically, fiscal risks, FX liquidity challenges and higher inflation costs are likely going to affect the pace of growth.

The Bank of Ghana opted to hike the main policy rate by 250bp, raising it to 17% in March 2022, in an attempt to arrest inflation.

According to Daniel Kavishe, RMB Economist for Sub-Saharan Africa, the Marginal Propensity to Consume (MPC) has seemingly opted to frontload its hiking cycle as opposed to taking a staggered approach. “Global economic developments, particularly the ongoing war in Eastern Europe and its effect on global growth and inflation, and the 25bp increase in the US fed funds rate, served as key economic factors that supported the committee’s decision”, says Kavishe.

The Minister of Finance recently announced key fiscal changes in view of Ghana’s current fiscal and economic challenges. Changes were introduced in both revenue and expenditure that would have a material effect on the budget.

“We contend that while government will make strict cuts in certain areas, key line items such as grants to other government units, interest payments and compensation of employees will remain sticky. Capital expenditure, on the other hand, is likely the area where expenditure can be rationalised, as has been seen in other governments in periods where expenditure growth needs to be curtailed,” adds Kavishe.

“Total revenue and grants are likely to improve by 37.0% relative to 2021, versus government’s assumption of 48.0% y/y (this implies full year figures of GH¢93bn versus government’s estimates of GH¢100.5bn),” concludes Kavishe.

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