Saturday, 17 March 2018

Financial giants takes position on Ghana's macro-economy

Image result for Standard Bank and Barclay Bank 

Adnan Adams Mohammed

Economists of financial giants in Africa, Standard Bank and Barclay Bank have posted a positive macroeconomic outlook for the country.

According to the research desk of Standard Bank, the parent company of Stanbic Bank Ghana, Ghana is likely to experience improved economic performance and narrowing of the current account deficit in 2018.

The Bank in a research report stated that, the current account deficit will probably continue narrowing towards 3.3% of GDP this year from around 4.6% of GDP in 2017, partly as a result of a faster than expected fiscal consolidation path, but also due to rising export revenues from oil and gold mining.

The research report noted, “We expect USD/GHS to trade within the forward curve for most of this year, rising only modestly to the 4.75 region by year-end. Our modest depreciation bias is as a result of more supportive Balance of Payment dynamics with the current account deficit narrowing, and as financial flows remain ample.”

It further predicted a year-on-year inflation to be around 9.3% as strong base effects from food inflation continue, while the expected cut in electricity tariffs should also be supportive.

Barclays Bank, in a research report of its own has said, it expects inflation to move to about 8% as early as April 2018 and end the year at the same level.

“Our projections show that inflation may remain in single digits for the remainder of the year, ending it around 8.0%..”

Although, the Barclay's prediction is significantly at variance with the Standard Bank’s inflation forecast, both give a positive outlook.

 Consumer Price Inflation increased to 10.6% in February from 10.3% as recorded in January.

The marginal increase is being attributed mainly to an increase in fuel prices. Food inflation for February also rose to 7.2 percent from 6.8 percent the month before while non-food moved up to 12.2 percent.

Also, with the Bank of Ghana’s inflation expectations survey, showing a decline of all its main categories (businesses, consumers and the financial sector), this provides further evidence that there is scope for the current policy stance to be eased.

Barclays Bank projections are in line with this. “We do not see a reason the BoG should maintain the current stance, particularly as the non-oil economy can benefit considerably from further policy relief.

Indeed, we see scope for at least a further 100bp cut in the policy rate to 19.00% at the March meeting, with further easing in subsequent meetings,” the statement added.


Moreover, Ayomide Mejabi an economist at Standard Bank Research, further posited that the balance of payment improvement should be supportive of the currency. “Beyond an improved Balance of Payment, oil production and the floating of bonds are projected to enhance the country’s financial inflows.”

According to Mejabi, “Although the trade surplus will probably narrow this year as imports rise in reaction to a more accommodative stance taken by the Bank of Ghana, it should remain in surplus.

“This is, as oil production continues to rise at a steady pace. The scheduled shutdown of the Jubilee oil field for maintenance of the FPSO should do little to stand in the way of oil production reaching 150,OOO bpd by the end of this year.”

All this, Ayomide explains, is expected to continue strengthening the forex reserves, pushing it higher than the country’s current end of year projection of US$5.8 billion (equivalent of 5.1 months of import cover).

He further noted that these indicators are enough to excite interest from investors.

“At this time, we are not overly concerned about the risk that a potential outflow of portfolio capital may pose on forex reserves despite the fact that offshore holdings of Ghanaian bonds amount to just over US$5 billion.

This is because we suspect another round of monetary policy easing in addition to reasonable strong fiscal consolidation and supportive Balance of Payment dynamics should be enough to keep investors interested,” Mr Mejabi said.

Consequently, the Head of Global Markets at Stanbic Bank Ghana, Afua Bulley has said, the macroeconomic stability achieved over the years coupled with the country’s strong Balance of Payment suggest that the year holds good prospects.

“The prospects are looking good and if the managers of the economy are able to sustain the economic stabilization program through a return to strong fiscal consolidation, we are confident that the economy will rub shoulders with economies of Europe and the West,” Ms. Bulley said.

The projections are in line with the World Bank’s outlook for Ghana which expects the economy to be the best-performing economy on the African continent.

Over the medium term, economic growth is expected to accelerate to 8.5% in 2018 and then moderate at 6.2% in 2019 as the budget and current account deficits narrow amid lower inflation and falling interest rates.

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