As the economy is beginning to show signs of recovery, both consumer and business confidence is on the rise according to latest surveys conducted by the Bank of Ghana (BoG).
BoG’s August 2024 report reveals a marked improvement in sentiment across the board, fuelled by easing inflation, strong GDP growth and firms meeting short-term targets. This uptick in confidence is largely attributed to ongoing improvements in the macroeconomic environment.
Following the 120th Monetary Policy Committee (MPC) meeting, Bank of Ghana Governor Dr. Ernest Addison highlighted some key factors driving this renewed optimism. He said consumer confidence improved on account of easing inflationary pressures, which has led to optimism about future economic conditions.
He added that business confidence has also strengthened, as firms met their short-term targets and expressed positive sentiments about company prospects amid improving economic conditions.
Provisional data from the Ghana Statistical Service for second quarter-2024 showed real GDP growth of 6.9 percent, up from 2.5 percent for the same period in 2023. Growth of non-oil GDP was even more impressive at 7 percent compared to 3.1 percent a year earlier.
Industry led this recovery with a 9.3 percent growth rate, rebounding from a contraction of 2.6 percent last year while the services and agricultural sectors also performed well, growing by 5.8 percent and 5.4 percent respectively.
The real Composite Index of Economic Activity (CIEA), a tool used by the central bank to track short-term economic trends, recorded an annual growth of 1.6 percent in July 2024. This is a significant turnaround from a contraction of 2.8 percent observed in the same period of 2023.
Contributors to this positive trend include increased construction activity, rising household consumption and a boost in both exports and imports.
Also, Dr. Addison emphasised that improvement in macroeconomic conditions has been closely tied to the disinflation process, which remains on track. This positive sentiment from both consumers and businesses is expected to drive further economic activity in the coming months.
The economy is projected to continue its upward trajectory, with the central bank optimistic that inflation will continue easing toward the target range of 13-17 percent by year-end.
Concurrent with the above, Bank of Ghana (BoG) has reduced its Monetary Policy Rate by 200 basis points to 27 percent, citing improvements in the country’s macroeconomic conditions.
Announced by BoG Governor Dr. Ernest Addison during the 120th Monetary Policy Committee (MPC) meeting, members evaluated recent economic trends and forecasts and reached the decision.
Indeed, the reduction was made in light of easing inflationary pressures and positive growth trends in the economy. Headline inflation has steadily declined over the past few months, falling from 22.8 percent in June to 20.4 percent for August 2024.
This decrease was largely driven by a drop in food prices, with food inflation dipping to 19.1 percent in August from 24.0 percent in June. Non-food inflation also saw a slight reduction, contributing to the overall disinflation process.
This goes to show that the Bank’s efforts to stabilise inflation are yielding results, with core inflation – excluding energy and utility prices – falling to 19.4 percent for August from 22.1 percent in June.
In fact, this sustained decline in inflation has helped improve business and consumer confidence, which is expected to support further economic growth. For instance, Gross Domestic Product (GDP) growth in second quarter-2024 was stronger than anticipated, recording a 6.9 percent increase compared to 2.5 percent in the same period last year.
Dr. Addison also pointed to recovery of the exchange rate; noting that while the country faced significant currency depreciation in 2022, the situation has stabilised. Central bank interventions have helped restore stability in the foreign exchange market.
Barring any unexpected shocks, the MPC expects inflation will gradually return to the medium-term target of 6-10 percent by end-2025.
Analysts believe the justification for a downward review of the rate is clear, but it remains to be seen how sustainable these will be. Since the economy is still largely dependent on the fortunes of gold, oil and cocoa export revenue, diversifying sources of export revenue remains key to economic strength and sustainability.
