Record uptick in selling prices weighs on demand in May

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Output price inflation
  • Output and new orders fall at accelerated pace
  • Output price inflation quickens to fresh series high
  • Vendor performance improves to second greatest extent on record

May PMI data for Ghana pointed to a fourth successive monthly deterioration in business conditions as output fell at the quickest rate for just over two years and new orders declined for the third month in a row. A record uplift in selling prices discouraged customers from placing orders in May and deterred firms from purchasing inputs.

Subsequently, there was little pressure on supply chains with lead times shortening to the second-greatest extent in the series history. Firms remained optimistic, however, and continued to hire staff amid hopes that demand conditions would improve over the next 12 months.

The S&P Global Ghana Purchasing Managers’ Index (PMI) posted below the neutral value of 50.0 for the fourth month in succession, indicating a deterioration in business conditions. At 47.4 in May down from 48.3 in April, the latest decline quickened from that seen in the previous survey period.

Demand for Ghanaian goods and services fell modestly in May. According to panel comments, price hikes deterred customers from placing orders.

Output fell sharply and at the quickest pace for 25 months. Firms indicated that while vendor performance was adequate, shortages of some key inputs and higher prices for fuel led to the latest contraction. The rate of decline was the third-strongest in the series, surpassed only by those seen during the onset of the pandemic in March and April 2020.

All five monitored sub-sectors registered a contraction in output. Agriculture recorded the steepest fall, followed by wholesale & retail, construction, services and manufacturing, respectively.

Sustained reductions in output and new orders led firms to scale back their buying activity. Companies have reduced their purchases three times over the last four months with the latest reduction modest overall. Stocks of inputs reduced marginally, and for the sixth month in succession.

Steep cost pressures also weighed heavily on purchasing activity. Global price pressures were exacerbated by geopolitical issues, with respondents often mentioning higher prices for fuel, transportation and raw materials. There were also mentions of unfavourable exchange rate movements against the US dollar.

Firms raised their staff wages amid a general uptick in expenses in May. Subsequently, overall input price inflation picked-up to a more than seven-and-a-half-year high.

Mounting costs led companies in Ghana to raise their selling charges at the quickest rate in the series history.

The intensification of inflationary pressures resulted in a moderation in sentiment from April. Nevertheless, firms were optimistic that price pressures would subside in the coming 12 months, leading to growth of activity.

On a more positive note, companies continued to hire additional staff. Moreover, the rate of employment growth was the strongest for three months, despite a solid decline in backlogs.

The picture for vendor performance was also encouraging with lead times improving for the tenth month running. In fact, vendor performance improved to the second-greatest extent in the series history.

Shreeya Patel, Economist at S&P Global Market Intelligence, said:“Growth in Ghana’s private sector was once again impeded by severe cost pressures, often deterring customers from placing orders. Output, however, fell at a particularly sharp rate reflecting global

supply issues for some key inputs. Surging energy costs also led companies to scale back their output levels. record rates of output price inflation only added to the dire demand situation.

“However, there were also positives from the latest data, most notably firms’ commitments towards boosting staffing levels. Headcounts rose at the strongest rate in three months despite a slowdown in demand.

“While there were some concerns of shortages, firms on the whole seem to be receiving inputs in a timely manner. For now, companies will hope that costs, particularly for fuel, subside though this is unlikely given the intensification of geopolitical and supply issues.”

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