Bank of Ghana (BoG) expects the ongoing recovery in the country’s real sector to continue to improve in the medium-term despite potential risks to the outlook as economic activity still falls below its potential levels.

According to the Bank of Ghana, the expected recovery will be driven by positive real sector expectations and a rise in foreign demand as the global economy continues to rid itself off the damages inflicted by COVID-9.

“Real sector activity is expected to continue to recover, although still below potential. In the outlook, activity is expected to improve in the medium term on the back of positive real sector expectations and rising foreign demand. However, there are potential risks in the outlook”.
Bank of Ghana

The domestic economy continues its strong recovery from the COVID-related economic downturn. The latest Ghana Statistical Service update showed that Real GDP growth for the first three quarters of 2021 averaged 5.3 percent, compared with an average contraction of 0.6 percent recorded in the same period of 2020. Similarly, non-oil GDP growth averaged 6.9 percent, against a contraction of 0.3 percent over the same comparative period. Overall, GDP growth for 2021 is projected to exceed the target of 4.4 percent.

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The latest Monetary Policy Report by the Bank of Ghana showed improvements in almost all the real sector high frequency indicators. Consumer spending, manufacturing activities, Construction Sector Activities, Transport sector activities, Industrial Consumption of Electricity, Passenger Arrivals at the Airport, as well as Ports and Harbours Activity, continue to improve as compared to 2020 when Ghana recorded its first case of the virus.

Despite the gradual improvements in the indicators, BoG’s updated Composite Index of Economic Activity (CIEA) of 10.2 percent in November 2021, compared with 11.9 percent in the corresponding period of 2020, means that growth still falls below potentials. However, the BoG is hopeful that the CIEA will pick up strongly in the medium-term amid elevated risks.

Global developments and Ghana’s Growth Outlook

In its growth outlook for Ghana, the Bank of Ghana stated that global growth developments will impact growth in the domestic economy. “Increased vaccine rollouts, continuous fiscal support and still accommodative monetary policy in Advanced Economies could trigger stronger growth for 2022 than anticipated”, Bank of Ghana stated in its report.

However, the Bank noted the Omicron variant and other variants may call for additional control measures that could heighten supply bottlenecks and therefore, moderate the recovery. For Ghana, rising inflation, rising debt levels, and possible monetary policy tightening may drag the recovery. The recent unrest between Russia and Ukraine also exposes the country to much volatility as an import-dependent economy.

Crude oil prices remain strong on the global market amid anticipated strong global recovery and now, by the ongoing Russian invasion of Ukraine. However, the Bank of Ghana stated “As a net exporter of oil, these developments will benefit the ongoing domestic recovery in Ghana”.

Uncertainties surrounding food production

Commenting on the down risks, The BoG warned of uncertainties surrounding food production. Delayed rainfall and input supply challenges (e.g. insufficient fertilizer) faced in 2021, led to shortfalls in food production.

Also, there were outbreaks of Bird Flu disease leading to a ban on movements of poultry and poultry products within and from affected regions, and also a ban on importation from affected countries last year. “These developments may lead to a decline in agriculture sector contribution to growth in 2022”, the Bank of Ghana stated in its outlook.

Already, food Inflation continues to rise, currently standing at 17.4% at the end of February 2022, higher than both January’s food inflation rate of 13.7% and the average of the previous 12 months of 10.8%.

With regards to expectations by economic agents, the latest Bank of Ghana surveys show increased business confidence, which may lead to increase private sector investment. However, the Bank warned that “weak consumer sentiments and subdued private sector credit may drag growth”. This means there is still some level of uncertainty within the economy and additional policy support from the government may be of help.