BOG Confirms Economic Slowdown

Three separate surveys conducted by the Bank of Ghana (BoG) during the first half of this year all confirm that not only has economic activity slowed down, but both business and consumer confidence have reduced as well.

The central bank’s Composite Index of Economic Activity (CIEA) was down by 0.6% in the first quarter of the year, in reverse of the 14.1% rise during the corresponding period of 2012. Similarly, the bank’s Business Confidence Survey indicates a 4.9% decline, and its Consumer Confidence Survey shows an 8.5% fall.

The results of the three surveys confirm the declining enthusiasm of businesses and consumers alike in response to the ongoing economic difficulties and government’s efforts to correct them.

The CIEA shows that activity in the construction sector fell by 2.5%, exports by 9.1%, SSNIT contributions by 35.9%, and imports by 9.9%.

Instructively, industrial production, as measured by industrial use of electricity, also fell by 3.5%, accompanied by a 2.9% fall in the sales of key manufacturing firms.

On the other hand, tourist arrivals were up 7.4%, domestic VAT - 10.3%, and bank credit to the private sector - 17.5%.

The BOG, in interpreting the survey results, notes that low commodity prices are pulling down export receipts, and power shortages have constrained output in the real sector.

It also needs to be added that the inability of the cash-strapped government to engage in capital expenditure so far this year has also slowed economic activity as well.

Another reason for the sluggish economic activity has been lethargic consumer demand, which has been captured in the BOG’s Consumer Confidence Survey’s own decline, brought about in part by rising actual inflation, and more so by heightened expectations of faster inflation into the future as increases in petroleum product prices, and most lately the introduction of a host of new taxes, are soon going to be joined by significant hikes in utility prices.

The BOG’s Business Confidence Survey on its own part has been depressed by the challenges in the energy sector, which have lowered confidence in growth prospects, as well as heightened inflation expectations over the medium term.

The survey shows not only weakened prospects for economic and industrial growth among business people, but has also reduced their hopes for corporate profitability.Corporate Ghana will now be looking to government to quickly begin spending some of the proceeds of the $1 billion Eurobond issue on its capital expenditure programme for 2013 in order to accelerate economic activity.

However, this requires achieving a prudent balance between injecting liquidity into the economy to achieve this and keeping a lid on the fiscal deficit so as not to fuel runaway inflation and cedi depreciation.

Source: The Finder