The S&P Global Ghana Purchasing Managers Index (PMI) which gauges the rate of inventory accumulation by managers of private sector firms and measures dynamics in economic activity, declined last month after a marginal improvement in July 2022.
Recent data show that the S&P Global Ghana PMI fell to 45.9 in August of 2022, the lowest in 28 months from 48.8 in July, pointing to the seventh consecutive month of decline in private sector activity.
“Output and new orders fell at sharp and accelerated rates while workforce numbers were cut for the second month in a row, amid subdued demand conditions. As a result, purchasing activity continued to decrease, albeit modestly, while firms reduced their inventories at the quickest pace for 20 months”.S&P Global
On the price front, overall input price inflation quickened to a near eight-year high amid unfavorable dollar-cedi exchange rate movements and rising fuel costs. In turn, output prices increased at the sharpest pace on record, S&P Global highlighted in its report.
According to S&P Global, sentiment regarding output in the year ahead remained positive, but eased to a five-month low, amid concerns over the economy, interest rate hikes, and high inflation.
Shreeya Patel, Economist at S&P Global Market Intelligence, said: “August PMI data for Ghana signalled another deterioration in business conditions as price pressures intensified and led to subdued demand conditions. Output and new orders fell at sharp and accelerated rates which in turn led firms to cut their staffing levels for the second month running”.
“The largest threat to the Ghanaian economy is no doubt sharply rising prices which have remained high over the last year-and-a-half. Inflation hit 31.7 per cent in July, with rates expected to remain elevated for at least the duration of the year.
“In a bid to combat inflation, The Bank of Ghana raised interest rates once again, a tactic adopted by many central banks across the globe during the third quarter. Interest rates now stand at 22 per cent in Ghana. Firms registered a moderation in sentiment in August but hope that difficulties start to ease sooner rather than later.”Shreeya Patel
A similar trend was seen with regards to new orders, which declined for the sixth month running and at an accelerated pace. In fact, new orders fell at the fourth-quickest rate in the survey’s history.
Decline in employment
The report further indicated that weak consumer demand fed through to hiring decisions with Ghanaian firms cutting their headcounts for the second month running in August. The rate of decline was quicker than that seen in the previous survey period but modest overall.
The PMI survey also showed that vendors sped-up their deliveries midway through the third quarter. In fact, lead times shortened to the greatest extent in the survey’s history. There were also reports that suppliers sought to improve customer satisfaction.
“Subdued demand conditions led Ghanaian firms to cut back on their buying activity in August. Quantity of purchases fell for the fourth month in a row, albeit only modestly. Ghanaian firms also reduced their inventories in August, a trend observed in each of the last nine months. Moreover, the rate of destocking was the quickest for 20 months and greater than the average seen for 2022 so far.
“Overall input price inflation quickened to a near eight-year high in August amid higher purchase and staff costs. Firms indicated that rising fuel prices and unfavorable exchange movements exerted upward pressures on costs.”S&P Global
S&P Global noted that with input costs increasing, firms chose to pass the burden on to clients. In fact, output price inflation quickened to the highest since the series began in January 2014. Unfavorable cedi-dollar exchange rate movements were overwhelmingly linked to the increase.
In the early 2000s, the government of the day touted the ‘private sector as the engine of growth’, and stressed the importance of that sector leading the charge for Ghana’s economic transformation. But over time, the private sector has continued to struggle to find its feet and to make the expected meaningful economic impact, despite its enormous contribution to the country’s economy – providing about 80 per cent in employment.