Businesses are increasingly less optimistic about growth prospects in 2022 on the back of deteriorating business conditions, the latest business confidence survey of the central bank has shown.
The central bank’s latest business confidence survey in June 2022, which gauges the level of optimism among business managers, revealed further worsening sentiments to 79.7 from 88.8 and 85.9 in February and April 2022, respectively.
Based on the Bank of Ghana’s data, June 2022 is the lowest business sentiment ever recorded, since February 2017. This sentiment was shared by consumers as revealed in the significant softening of consumer sentiments.
“While consumers felt less optimistic about future economic conditions, businesses were concerned about the impact of the high cost of raw materials, rising labour costs, exchange rate volatility, and weak consumer demand. These conditions adversely impacted business optimism and prospects,” Dr Ernest Addison, Governor and Chairman of the Monetary Policy Committee (MPC) of the Bank of Ghana, said at the press briefing following the 107th MPC meeting.
Likewise, the Ghana Purchasing Managers Index (PMI), which gauges the rate of inventory accumulation by managers of private sector firms and measures dynamics in economic activity, declined.
The S&P Global Ghana PMI increased to 48.5 in June of 2022, still below the 50-threshold, from 47.4 in the previous month, pointing to a fifth consecutive month of contraction across the country’s private sector but the weakest in the current sequence.
According to the S&P Global Ghana PMI, output fell for the sixth month in a row, although the rate of decline eased noticeably. New orders also decreased for the fourth straight month amid reports of weaker demand. Despite this, firms raised their headcounts for the tenth month running, with the rate of employment growth modest but quicker than the long-run series average. At the same time, purchasing activity decreased slightly, while vendor performance continued to improve.
This business confidence indicator provides information on future developments based on opinion surveys on developments in production, orders and stocks of finished goods in the industry sector. It can be used to monitor output growth and to anticipate turning points in economic activity. Numbers above 100 suggest increased confidence in near future business performance, and numbers below 100 indicate pessimism toward future performance.
Economic activity in the first quarter, according to the Ghana Statistical Service (GSS), showed moderation in Gross Domestic Product (GDP) growth to 3.3 percent for the first quarter of 2022, compared with 3.6 percent in the same period of 2021, and 7.0 percent in the fourth quarter of 2021. Indeed, following the first quarter of 2022 decline in economic activity, the central bank’s latest data ending May 2022 further reveals an imminent slowdown in economic activity ending the first half of the year.
The Bank of Ghana’s high-frequency indicators, as measured by the Composite Index of Economic Activity (CIEA), recorded an annual growth of 1.7 percent in May 2022, compared to 2.5 percent in April 2022 and 5.0 percent in December 2021. The Real CIEA mirrors the trend of growth of the economy as measured by the Ghana Statistical Service (GSS).
This, according to the Governor, is on the back of exports, credit to the private sector, and tourist arrivals, while construction activities and industrial production contracted over the period.