New business orders dipped for the first time in 15 months during August 2021, prompting reductions in output and employment, according to IHS Markit.
Among the factors hampering demand was inflationary pressures, which remained significant during the period under review. However, there were signs that showed firms were optimistic that demand will pick up in the coming months. This was to result in a solid accumulation of inventories, IHS Markit indicates.
Furthermore, the headline seasonally adjusted Ghana Purchasing Managers’ Index (PMI) moved further below the 50.0 no-change mark in August, 2021. The index posted a decline of 48.9 from 49.7 in July 2021. This reflects a second successive decline in business conditions across the private sector.
Commenting on the latest survey results, Andrew Harker, Economics Director at IHS Markit, indicated: “The PMI data show that the Ghanaian private sector is going through a soft-patch at present as demand is restricted by inflationary pressures in the economy.”
According to the report, companies in Ghana lowered their staffing levels for the second month running. Aside this, the pace of job cuts softened and was only fractional.
Despite the reduction in workforce numbers, the decline in new orders meant that firms were able to work through backlogs in August 2021. Business orders nearing completion also decreased for the first time in six months.
Companies optimism about business activity
Albeit, companies affected by steep price rises showed some signs of relief as rates of inflation softened from July 2021. That said, overall input costs continued to rise sharply amid higher costs for both purchases and staff. Increased prices on the purchase of inputs often reflected material shortages, higher transportation costs and currency weakness.
Also, selling prices continued to rise rapidly emanating from higher costs passed on to clients, despite the rate of inflation easing. The increase in charges remained steeper than the series average.
Despite signs of weakness in August 2021, companies remained strongly optimistic that business activity will increase over the coming year. Improving business conditions and greater stability around prices fueled these positive sentiments. This is despite that fact that optimism eased from that seen in July 2021.
“There are some reasons to believe, however, that growth can resume soon. Companies remained confident that their output will rise over the coming year, and some were even sufficiently encouraged to expand their inventory holdings in order to prepare for coming improvements in demand. For 2021 as a whole, IHS Markit is forecasting GDP growth of 4.0%.”Andrew Harker, Economics Director at IHS Markit
Furthermore, expectations of improvements in demand in the coming months encouraged some companies to expand their purchasing activity. However, others were either put off by high prices for inputs or had sufficient inventories, IHS Markit avers. Thus, the purchase of input remained broadly unchanged overall. Meanwhile, inventories increased solidly and at the fastest pace in just over three years.
Moreover, where companies purchased inputs, they benefited from a shortening of suppliers’ delivery times for the first time in a year-and-a-half. Panellists indicated that vendors had often responded well to requests for faster deliveries.
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