Fitch Solutions, an international market research institution that provides accurate, granular and in-depth information especially in markets where information is hard to find and difficult to interpret, has disclosed that the Ghanaian economy will weaken in 2023, with real GDP growth slowing to 2.9% from an estimated 3.3% in 2022 and a forecasted average inflation of 33.4%.

Fitch forecasted Ghana’s real GDP growth based on the data released by Ghana Statistical Service which showed that the real GDP growth weakened significantly in Q3 22 to 2.9% year on year from 4.7% in Q2 22. While the mining sector recorded robust growth of 14.9%, a 7.4% contraction in the manufacturing sector and a 7.0% decline in the construction industry weighed on overall economic activity.

Given strong price pressures inflation averaged 48.3% in Q4 22 and weak private sector sentiment, Fitch stipulated that the economic activity will have slowed further in Q4 22, informing the estimate that real GDP growth fell well below its five-year pre-pandemic average of 5.3% in 2022.

While healthy export growth will provide some support to the economy, Fitch solutions expects domestic demand to soften on still-elevated price pressures, fiscal consolidation and weaker access to credit for both businesses and the government.

“Despite tailwinds from anticipated production increases in Ghana’s most salient export products, tighter fiscal and monetary conditions as well as still-strong price pressures will weaken domestic demand over the coming quarters.”
Fitch Solutions

Fitch in its interpretation further communicated that ‘Net exports’ will be the driver of Ghana’s economy in 2023. ‘Production increases in the country’s most prominent commodities such as gold, oil and cocoa will bolster export growth,’ it added.

“Indeed, our Mining team projects that growth in gold output will remain healthy following the recommissioning of the Bibiani mine, as well as efforts to formalize artisanal and small-scale gold mining, while our Agribusiness team forecasts robust growth in cocoa production as favourable weather conditions in Q4 22 are likely to result in a strong harvest.”
Fitch Solutions

That notwithstanding, Fitch mentioned that subdued private sector activity amid still-high inflation and rising taxes will lower import demand, and thus improve Ghana’s trade balance. ‘Taking these various dynamics into account, we project that net exports will add 2.1 percentage points (pp) to headline economic growth in 2023, up from 1.7pp in 2022,’ it indicated.

According to Fitch, the uncertainty around Ghana’s external debt restructuring programme and exchange rate volatility pose downside risks to its short-term economic outlook.

Expected Average Inflation Rate For 2023

Providing an outcome of its latest assessment, the international market research institution published that inflation will only come down gradually in 2023 as tax hikes, including an increase in the value-added tax to 15.0% from the previous 12.5%, will exert upward pressure on consumer prices.

The projection means inflation will still remain high this year, but lower than last 2022’s average.

“A decline in real incomes will weaken consumer activity in 2023. We anticipate a disinflationary trend in 2023 with price growth averaging 33.4%.”
Fitch Solutions

It continued that other fiscal consolidation measures such as the introduction of an income tax bracket of 35.0% will further squeeze household finances in 2023. ‘Private consumption growth to also slow to 2.4% in 2023, from an estimated 2.8% in 2022,’ it stated.

Ghana’s Inflation Rate

Ghana’s inflation ended 2022 at a record of 54.1%.

Despite a strong improvement in the value of the cedi and a reduction in the prices of petroleum products, the rate of inflation still went up in December 2022. This was due to steep increases in food, transport and housing costs.