Growth target remains doubtful with rising inflation – Fitch


The country’s economic growth this year has been projected to fall short of government’s outlook of 5.8 percent, on the back of soaring inflation and fiscal tightening amid weakening investor sentiment, a recent Fitch monthly outlook has reaffirmed.

These headwinds are expected to most likely reduce private consumption and investment.

According to the April 2022 sub-Saharan Africa Monthly Outlook, real GDP growth in Ghana will slow to 4.4 percent in 2022 from 5.4 percent in 2021.

“While private consumption will remain the key driver of growth, households will face significant headwinds from high inflation and fiscal consolidation measures, including the recent implementation of a 1.5 percent tax on electronic payments,” the report states.

The report further highlights that the declining business confidence points to a modestly weaker outlook for gross fixed capital formation.

The Ghanaian purchasing managers’ index (PMI) came in at 47.2 in March 2022, below the neutral threshold of 50. Nonetheless, the S&P Global Ghana PMI reported an increase to 48.3 in April 2022 from the previous month.

This signals an expectation that manufacturing output is set to decline and business conditions are deteriorating – fuelled by elevated inflation, depreciation of the cedi and tightening monetary conditions, following the Bank of Ghana (BoG) hike of its policy rate by 250 basis points in March 2022 and a possible further hike next week amid growing concerns among investors.

Already, some market analysts have noted that the Monetary Policy Committee’s (MPC) decisions in May 2022 will be very crucial to the growth outlook as government has already embarked on aggressive fiscal tightening, which in itself is a downside risk to growth in the short-term.

“With inflation proving intractable at this point, we believe the Bank of Ghana will prioritise its price stability mandate and hike as and when necessary… albeit with a finger on the growth pulse. Against this backdrop, we slashed our growth forecast for 2022 to between 4.5 percent and 5.5 percent with a midpoint of 5 percent,” Senior Analyst with Databank, Courage Kingsley Martey said in an interview with the B&FT.

Fitch highlighted in an earlier report from April 2022 that it expected elevated inflation and fiscal consolidation efforts to weigh on private consumption, while declines in oil and cocoa production would cap export growth.

“Indeed, our forecast implies that Ghanaian growth will remain below trend – growth averaged 5.8 percent over 2015-2019 in 2022.

“The adoption of a 1.5 percent tax on electronic payments, including mobile money transactions, bank transfers and merchant payments, will further cap household spending growth. Against this backdrop, we forecast private final consumption to expand at 4 percent in 2022, slightly below the five-year pre-pandemic average of 4.2 percent and contributing 2.5 percentage points (pp) to headline growth,” the report added.

Inflation Outlook

Mr. Martey mentioned that, ultimately, inflation is expected to decelerate in the second half of 2022 to end the year at around 15 percent.

“The main factors we expect to drive down inflation include the BoG’s uncompromising squeeze on money supply, which will restrain demand-pull inflation and weigh down headline inflation.

“We also anticipate a favourable base effect to set in from 4Q-2022 to support the disinflation into 2023, barring a steeper-than-expected hike in utility tariffs and further shocks to energy and food prices arising from the ongoing geopolitical conflicts,” he said.


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