Ghana’s economy assume recovery mood as COVID-19 restrictions are lessened

Adnan Adams Mohammed

The Bank of Ghana has indicated that the country’s economy has assumed recovery mood as at the start of the third quarter of the fiscal year following easing of restrictions which inevitably also promoted economic activity as well.

 

The First Deputy Governor of the Bank of Ghana, Dr. Maxwell Opoku-Afari has given indication that contrary to fears that the country’s economy will take some time before getting back on track, data available to the Central Bank suggest that the economy is on its way to recovery. Despite a contraction in economic activities in the second quarter of the year, the Composite Index of Economic Activity (CIEA) shows significant recovery in the third quarter.

 

Data released by the central bank on the Composite Index of Economic Activity (CIEA) recorded a recovery in real terms, of 3.6 percent for July 2020, compared with a contraction of 10.6 percent recorded in May. Also, according to the Ghana Statistical Service (GSS) Ghana’s economy contracted by 3.2 percent in the second quarter of this year, a decline from the 5.7 percentage growth recorded during the same period in 2019. Unlike Gross Domestic Product growth, as measured by the Ghana Statistical Service, which tracks growth in economic value in the economy, the BoG’s CIEA measures changes in the level of economic activity. While the two produce different results in quantitative terms, they are correlated with regards to direction, since it is economic activity that generates economic value. Thus, growth in the CIEA as announced by the BoG has always been matched by growth in GDP, which is released later by the GSS.

 

“What we have seen at the Central Bank and one of the advantages we have is to have access to what we call High Frequency Leading Indicators. Putting all those High Frequency Leading Indicators together, we have been able to put together what we call Composite Index of Economic Activity which helps us track short-term dynamics in economic activities and gives us a sense of where economic activity is going to”, Dr Opoku-Afari explained. 

 

“Even though we saw a contraction in the second quarter, the data that we are picking from the Composite Index Economic Activity and High Frequency data including credit to private sector, manufacturing, sales and a few other things shows that we are beginning to see some significant recovery already in the first few months of the third quarter up to September and in fact throughout the third quarter,” he added.

 

In addition to the positive trends in the CIEA, other indicators monitored by the Bank of Ghana also point to signs of a recovery. With the exception of workplace clusters, which still remained below baseline, all other indicators embodied in the google mobility data — commuting and travelling, visit to supermarkets and pharmacy, and residential activity have moved above baseline.

 

“The Ghana Purchasing Managers Index, which gauges the rate of inventory accumulation by managers of private sector firms and measures dynamics in economic activity, points to a steady rise in business activity since April 2020,” Governor of the Central Bank, Dr. Ernest Addison explained in a statement following the meeting of the Monetary Policy Committee (MPC) of BoG.

 

On the real economy, despite the contraction in the second quarter, the indication is for improved growth outturn in the third and fourth quarters. Leading indicators of economic activity point to a recovery.

 

“A sustained level in consumer and business confidence, broad-based growth in the indicators of the CIEA are all supportive of positive growth conditions in the outlook,” Dr. Addison said.

 

The Bank expects estimate that growth in 2020 will be between 2.0 percent and 2.5 percent.

 

Before the arrival of coronavirus in Ghana the country had been enjoying a strong run of economic growth since 2017, of between six and eight percent annually.

 

In view of this, some economic analysts have indicated that this provides a foundation for a quick recovery in economic activity, given that the coronavirus currently under control without further resort to needed draconian measures which seriously curb economic activity.

 

The World Bank, the International Monetary Fund and the African Development Bank all predict negative economic growth in 2020, both on a global and pan African level. Indeed, sub Saharan Africa is expected to enter its first economic recession in 25 years.