New orders return to growth

Economic growth slowed
  • Renewed increases in new business, employment and purchasing
  • Activity continues to fall, but at softer pace
  • Business confidence shows signs of improvement

The health of Ghana’s private sector stabilised in February following a deterioration at the start of 2024. New orders returned to growth over the month, prompting renewed increases in employment and purchasing activity. On the other hand, output continued to decrease. Rates of inflation generally remained muted, with the exception of staff costs which rose at the fastest pace since November 2022.

The S&P Global Ghana Purchasing Managers’ Index™ (PMI) moved back above the 50.0 no-change mark in February to signal a renewed improvement in the health of the private sector. At 50.2, the index was up from 48.4 in January and pointed to only a fractional strengthening of business conditions.

The key factor helping the private sector to stabilise in February was a renewed increase in new orders, which returned to growth following a first decline in a year during January. Client recommendations reportedly helped firms to secure new business, while the launch of new products also supported growth.

Less positive was the picture for output, which decreased for the second month running amid generally subdued demand, price rises and power supply issues. The pace of decline eased, however, and was only marginal as some firm responded to the renewed expansion of new orders.

The return to growth of new business had a positive impact on employment and purchasing activity, both of which also saw renewed increases in February.

The modest increase in purchasing activity helped feed through to a rise in stocks of inputs, which had similarly fallen in January. Efforts to stock items were helped by quick deliveries from suppliers. Lead times continued to shorten amid prompt payments for orders.

Increased capacity meant that firms were able to deplete backlogs of work again in February. Respondents indicated that the fall in new orders at the start of the year had provided the space to make inroads into outstanding business, which decreased to the largest extent since November 2022.

The rate of overall input price inflation ticked higher in February amid faster increases in both purchase prices and staff costs. That said, the increase in total input costs was still softer than the series average.

For the first time since the survey began in January 2014, staff costs rose more quickly than purchase prices midway through the first quarter of 2024. Rising workforce numbers and adjustments in response to higher living costs were behind the solid increase in employee expenses, which rose at the fastest pace since November 2022. Where purchase   prices increased, panellists often linked this to exchange rate weakness.

The pass through of higher input costs to customers resulted in a further rise in output prices in February. The rate of inflation was solid and faster than that seen in January, but softer than the series average.

Hopes that economic conditions and new orders will strengthen supported optimism in the year-ahead outlook for business activity. Sentiment rebounded somewhat from that seen in January and was back above the average in just over ten years of data collection.

Andrew Harker, Economics Director at S&P Global Market Intelligence, said: “There were some tentative signs of recovery in Ghana’s private sector in February following a set-back at the start of the year. In particular, new orders rose, encouraging companies to increase their employment and purchasing. Business confidence also recovered ground.

“On a less positive note, business activity continued to fall. Should the nascent recovery in new business be sustained in the months ahead, however, we would expect output to follow suit.”

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