Rebound in economic activity continues as reflected in some improvements in Bank of Ghana’s updated Composite Index of Economic Activity (CIEA), although at a slower pace compared to 2021.

The CIEA recorded an annual growth of 4.2 percent in January 2022 compared to 13.9 and 3.4 percent in the corresponding periods of 2021 and 2020. According to the Bank of Ghana (BoG), the key drivers of the index during the period were industrial production, exports, credit to the private sector and air passenger arrivals.

Despite improvements in some of the real sector indicators, BoG disclosed that consumption of goods and services, and construction activity, slowed down in the first month of the year, acting as a drag on the index. A closer look at the index showed that Ghana’s rebound slowed down significantly in the last quarter of 2021 as the CIEA dropped to 5.0 percent in December from 11.2 percent in September. The current rate in January 2022 is also lower than what was recorded in December last year.

Consistent with the slow pace of the rebound, BoG’s business and consumer confidence surveys, conducted in February 2022, revealed a waning of sentiments with business confidence declining by a greater extent. The Business Confidence Index declined to 88.8 in February 2022, from 98.4 in December 2021. Likewise, the Consumer Confidence Index reduced from 88.1 in December 2021 to 87.4 in February 2022.

“While consumer confidence dipped by 0.7 percentage points, business confidence declined by 9.6 percentage points. Consumers were mainly concerned about the persistent increases in fuel prices, increases in transportation fares and rising inflation. Businesses, in addition to these factors, were also concerned about the impact of these on macroeconomic conditions and on their short-term targets and profitability for 2022”.
Bank of Ghana

Rising inflation dragging PMI

These survey findings were broadly in line with observed trends in the February 2022 Ghana Purchasing Managers Index (PMI). The Ghana PMI, a measure of the rate of inventory accumulation by managers of private sector companies, fell below the 50.0 benchmark on the back of weak output and purchasing activity amidst rising inflation.

Notwithstanding the sustained growth momentum, rising food prices, upward adjustments in petroleum prices and its effect on transport fares, and exchange rate depreciation pass-through have pushed up inflation to 15.7 percent at the end of February 2022. The current rate of inflation is 5.7 percentage points outside the Central Bank’s medium-term target band.

Food inflation jumped sharply from 12.8 percent in December 2021 to 17.4 percent in February 2022, while non-food inflation jumped from 12.5 percent to 14.5 percent over the same period. Also, underlying inflationary pressures have increased, signaling broad-based price pressures emanating from the Russia-Ukraine crisis.

Meanwhile, Bank of Ghana’s core inflation measure (defined to exclude energy and utility prices), also increased from 11.8 percent in December 2021 to 13.6 percent in January 2022 and rose further to 15.4 percent in February 2022. Similarly, weighted inflation expectations comprising consumers, businesses, and financial sector, also picked up significantly over the period, the Bank of Ghana disclosed.

Rebound in private sector credit

However, credit to the private sector continued to recover, consistent with the rebound in economic activities. In nominal terms, annual growth in private sector credit increased significantly to 17.1 percent in February 2022 compared with 7.4 percent in the same period of 2021. In real terms, private sector credit grew by 1.2 percent relative to a contraction of 2.7 percent, over the same comparative period.

The Central Bank’s latest credit conditions survey revealed tightened credit stance on loans to enterprises. However, demand for credit by households and small and medium sized enterprises are projected to increase in the near to medium-term. Economic Activity Economic Activity Economic Activity