The International Monetary Fund (IMF) latest updated World Economic Outlook Report has painted a brighter picture of the country’s recovery path. As such, the Fund has revised Ghana’s growth rate upwards by 0.4% in 2021.
Overall, the IMF expects West Africa’s second-largest economy to expand by 4.6% in 2021. This is an improvement from the earlier forecast which expected the economy to grow by 4.2%. The recently updated forecast shows that Ghana’s growth rate will be higher than Sub-Saharan Africa’s regional average of 3.4% in 2021.
However, the Fund expects the economy to bounce back stronger in 2022. As a result, the IMF has projected an inspiring Gross Domestic Product (GDP) growth rate of 6.1% for next year. The recent revisions in the country’s growth rate show much optimism for a much faster recovery in economic activities.
Earlier, the Bank of Ghana had indicated that the economy was on a rebound with sustained momentum. The recent pick-up in economic activity was reflected in the BOG’s updated real Composite Index of Economic Activity. The CIEA recorded real annual growth of 13.9% in January 2021, up from 8.3% in December 2020. The recent index is the highest since December 2019.
Bank of Ghana Confidence Surveys
However, business and consumer confidence dropped in February due to the uncertainties at the time as the country experienced the second wave of the pandemic. Meanwhile, the BOG also projected a growth rate of 5.0% for this year. This also represents much optimism in the economy to return to its normal growth path in the shortest possible time.
Preliminary estimates from the Finance Ministry placed Ghana’s growth rate at 0.9% for 2020. This is in line with the Breton Wood Institution’s growth rate projection of 0.9% for last year. The low growth outturn for the country last year was a result of the devastating effect of the COVID-19 on almost all sectors of the economy.
In the third quarter of last year, the agriculture sector was the only one that recorded a positive growth rate. Both industry and Services sectors recorded negative growth rates for Q2 and Q3. The cumulative effect saw overall GDP contracting by 3.2% and 1.1% in the second and third quarters of 2020.
Inflationary Expectations
Despite the positive growth projections, the IMF expects the country’s average yearly inflation to rise in 2021; higher than the Fund’s earlier forecast. This is because the International Monetary Fund has revised the country’s end-year inflation rate from 8.7% to 9.8%. Per the recent projections, Ghana is among the countries with the highest rates of inflation within the ECOWAS sub-region.
Nonetheless, the Fund expects inflationary pressures to ease gradually next year. According to the Fund, year-on-year inflation will slow down to 7.5% in 2021. This will mean relatively stable average levels of prices of goods and services in the country. Meanwhile, after recording overall average inflation of 9.9% in 2020, the country’s inflation has begun to rise. Inflation shot up from 9.9% in January to 10.3% in February 2021. Food remains the major driver of the country’s inflation.
Meanwhile, the Ghana Statistical Service will soon release its data on the Consumer Price Index (CPI) for March 2021. However, there are mixed expectations. On one hand, the recent vaccination exercise may reduce uncertainties among consumers which will further lower inflationary pressures. Conversely, inflation may rise due to high consumer demand which characterized the Easter festivities. Even though other factors may play a role, the interplay between these two will significantly affect the average inflation rate for March.
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