Key findings
- Output and new orders fall, although at a softer pace
- Delivery times improve at near-record rate
- Overall input price inflation quickens to seven and- a-half year high
The start of the second quarter of 2022 pointed to a third consecutive deterioration in business conditions in Ghana’s private sector. That said, there were softer reductions in both output and new orders while headcounts continued to expand. Positives could also be drawn from a near-record improvement in delivery times, which helped underpin a renewed uptick in buying activity.
However, the main drag on demand continued to stem from the intensification of inflationary pressures. Overall input price inflation quickened to the highest since September 2014, while output charges were raised at a marked pace.
The S&P Global Ghana Purchasing Managers’ Index™ (PMI®) posted below the neutral value of 50.0 for the third month in succession, indicating a deterioration in business conditions.At 48.3 in April, up from 47.2, the latest deterioration softened from March, and was modest overall.
Demand for Ghanaian goods and services faltered once again, amid reports of rising prices. There were signs of a movement towards stability, however, with new orders falling at a softer pace in April.
A similar trend was seen with regards to output. Cash shortages and weak demand led to a solid, albeit softer, decline in output.
Despite falls in output and new orders, firms raised their headcounts for the eighth month in succession. The rate of growth was quicker than the long-run series average, and broadly in line with that seen in March. Firms reportedly raised headcounts ahead of business expansions.
Continued falls in new work paired with sustained employment growth resulted in spare capacity at Ghanaian companies. Backlogs fell solidly, and for the fourth month in a row.
Vendor performance improved for the ninth month in succession during April. In fact, the extent to which lead times shortened was the second-quickest in the series history. Firms reported that larger workforces at suppliers, fewer pandemic-related restrictions and relatively weak demand for inputs helped speed up deliveries.
Subsequently, quantity of purchases rose for the first time since the start of the year. The rate of growth was marginal, however, with some firms reporting that subdued demand weighed on growth. In contrast, input inventories fell for the fifth month in succession, though the pace of decline was only slight.
Geopolitical tensions, rising material prices and global shortages led to an intensification of cost pressures in April. Purchase price inflation quickened to a seven-and-a-half year high which respondents linked to higher fuel, commodity and transportation costs.
Unfavourable exchange rate movements against the dollar were also mentioned. As a result, firms raised staff wages in response to greater living expenses. Overall input price inflation quickened to the highest since September 2014 and was amongst the sharpest in the series history.
Looking ahead, business confidence rebounded to the highest for three months. Firms reported hopes for new client wins, an end to international COVID-19 restrictions, and an improvement in demand. Some businesses also reported plans to expand their operations over the next 12 months.
Shreeya Patel, Economist at S&P Global, said: “April PMI data revealed a third successive monthly deterioration in business conditions in Ghana’s private sector. That said, the reduction was only marginal and softened from March indicating a movement towards stability. At the same time, firms were optimistic that their situation would improve in the coming months and responded by lifting their headcounts.
“At the heart of the latest contraction was weak demand for Ghanaian goods and services. Once again, rampant price hikes forced customers away from placing orders. The war in Ukraine exacerbated issues, with anecdotal evidence often indicating higher prices for fuel, transportation and commodities in April.
“In order to encourage demand, firms in Ghana may have to resort to discounting, which comes at the cost of profit margins. For now, steep inflationary pressures remain the largest threat to Ghanaian firms.”
