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Private Sector growth slows down as inflationary pressures rise in July 2021

August 5, 2021
Stephen M.Cby Stephen M.C
in Economy, Economics
0
inflation

The growth momentum of Ghana’s private sector as witnessed in the first half of the year paused in July, 2021 amid rising inflationary pressures, IHS Markit indicates.

A sequel to this included slowdown in new order growth to a marginal pace, while output, employment and purchasing activity trended downwards. Nonetheless, outlook on business confidence in 2022 improved markedly.

Commenting on the latest survey results, Andrew Harker, Economics Director at IHS Markit, indicated:

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“The July Ghana PMI signalled a pause in growth in the private sector as inflationary pressures put the brakes on the economic recovery. Costs of a range of different inputs increased, leading to the fastest rise in selling prices for almost seven years. Customers were often reluctant to commit to orders given the hike in charges.”

IHS Markit

Considering price effects, sharp rise in rates of inflation were seen of both purchase and staff costs. In turn, companies raised their own selling prices at the sharpest pace in almost seven years (2014-2021).

Particularly, the headline seasonally adjusted Ghana PMI recorded 49.7 in July 2021, down from 51.0 in June and below the 50.0 neutral mark for the first time in a year. That said, the deterioration in business conditions signaled by the PMI was only fractional.

According to IHS Markit, new orders continued to increase at the start of the third quarter, thereby extending the current sequence of expansion to 14 months. Meanwhile, some firms indicated that customer’s demand still improved, although the softest in the current growth period as price increases deterred some customers.

The report highlights that the negative impact of price rises was evident across the latest survey. To corroborate, anecdotal evidence showed price rise as a factor contributing to lower business activity, employment and purchasing.

Rise in input cost pushes inflation

Furthermore, given the above cases (business activity, employment and purchasing), the reductions in July 2021 were marginal. Also, increased costs also deterred companies from holding inventories, with stocks of purchases decreasing for the third month in a row.

Purchase costs reportedly increased at the fastest pace since March 2017. Raw material costs were also higher amid supply shortages, while rising prices of fuel and freight were also highlighted.

Moreover, the rate of wage inflation climbed highest since September 2014, with firms linking higher staff costs to an increase in the national minimum wage and efforts to help staff with a higher cost of living.

As a response to these mounting input costs, firms in Ghana raised their own selling prices rapidly in July 2021. More so, suppliers’ delivery time increased marginally again at the start of the quarter, emanating from shortage of goods, and again maize was mentioned as being particularly difficult to obtain.

In addition, issues with the supply of materials combined with new order growth to lead to a fifth successive rise in backlogs of work. That said, in line with the trend in new orders, the rate of accumulation in outstanding business slowed.

“Firms will be hoping that the pause in July proves to be only a blip and that growth can resume as the third quarter progresses. Prospects in this regard appear good, with business confidence improving sharply over the month.”

READ ALSO: Gov’t saves GH¢3,336 million due to adjustment of interest payments

Tags: Employmentinflationinput costoutputprivate sector
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