KEY VIEW
• We maintain our forecast that the Ghanaian economy will expand by 3.0% in 2023 – down from 3.1% in 2022 – as high inflation and fiscal prudence under the country’s IMF programme weigh on domestic demand.
• In 2024, we forecast that economic growth will accelerate to 3.7% as price pressures ease – due to more favourable exchange rate dynamics – and consumer activity strengthens.
• That said, stronger economic activity in 2024 will increase demand for imported goods and services, which will narrow the country’s trade surplus and drag on economic growth.
We maintain our forecast that the Ghanaian economy will expand by 3.0% in 2023, down from 3.1% in 2022. Data released by Ghana Statistical Service show that the economy slowed modestly to 3.2% y-o-y in Q223, from a revised 3.3% in Q123. The deceleration in growth was primarily caused by a continued contraction (of 10.2%) in fixed investment and weakening exports. In contrast, growth in private consumption rebounded to 5.8% (from 1.9% in Q123), the strongest performance since Q222. From a gross value-added perspective, the agricultural and services sectors – which grew by 6.0% and 6.3% respectively – continued to support the economy in Q223, while the construction sector (which contracted by 11.2%) remained the main drag on growth.
Economic Growth Will Remain Below Trend
Ghana – Contribution To Real GDP Growth, pp (LHS) & Real GDP Growth, % y-o-y (RHS)
Note: BMI forecast. Source: Macrobond, Ghana Statistical Service, BMI
Economic Growth Will Disappoint In H223
We expect that economic growth will soften further in H223. Fiscal prudence under Ghana’s Extended Credit Facility with the IMF will put a damper on domestic demand. While we expect inflation to moderate over the coming months – from the August print of 40.1% y-o-y (see LHS chart below) – as a result of exchange rate stability and statistical base effects, it will remain elevated, ending the year at a projected 25.9%. This will continue to erode households’ purchasing power and cap consumer spending over the remainder of the year. In addition, tight financial conditions (the Bank of Ghana has hiked the benchmark policy rate by 1,150 basis points to 30.00% since late 2021) will weigh on business activity and keep fixed investment firmly in contractionary territory. Indeed, business confidence remains muted, suggesting that corporate investment is unlikely to recover in H223 (see RHS chart below).
Domestic Demand Will Remain Weak In H223
Ghana – Consumer Price Inflation, % y-o-y (LHS) & Business Confidence Index (RHS)
Note: A low index number indicates low confidence. Source: Macrobond, Ghana Statistical Service, Bank of Ghana, BMI
Domestic Consumption To Drive Up Growth In 2024
We forecast that economic growth in Ghana will accelerate to 3.7% in 2024, in part driven by stronger consumer activity. Inflation will moderate substantially in 2024 – averaging 18.9%, from 40.5% in 2023 – due to statistical base effects, previous monetary tightening and more favourable exchange rate dynamics. The sharp depreciation of the Ghanaian cedi was the key contributor to run-away inflation over 2022-23 as the country is highly dependent on imported consumer products and capital goods. However, we forecast that the exchange rate will strengthen by roughly 1% in 2024 (see LHS chart below) as we believe that the authorities will make progress regarding the restructuring of Ghana’s external debt under the G20 Common Framework. Indeed, we anticipate that a deal will be reached around Q224-Q324, which will improve investor sentiment towards Ghanaian assets, drive capital inflows (see RHS chart below) and provide support to the cedi. Taking this into account, we project that private consumption will grow by 3.9% in 2024 – from 3.4% in 2023 – adding 3.0 percentage points to headline real GDP growth.
Stronger FX Dynamics To Drive Down Inflation In 2024
Ghana – Exchange Rate, GHS per USD (LHS) & Capital And Financial Account, USDmn (RHS)
Note: BMI forecast. Source: Macrobond, Bank of Ghana, BMI
That said, fiscal consolidation will prevent growth in household spending from returning to its five-year pre-pandemic average of 5.2%. The government introduced multiple revenue-enhancing measures in Q123-Q323, including an increase in the VAT rate to 15.0% (from 12.5% before), the institution of a personal income tax bracket of 35.0% and a 10.0% withholding tax on betting and lottery winnings. We believe that the implementation of more revenue measures is likely in the months ahead as the government attempts to meet its IMF targets. This will weigh on disposable incomes in 2024, capping consumer spending growth.
Narrowing Trade Surplus To Drag On Growth
Net exports will once again become a drag on Ghana’s economy in 2024. Our Mining team projects healthy growth of 5.0% in gold production, driven by the restoration of existing mines, the introduction of new gold mining projects, and the integration of artisanal miners into Ghana’s official gold output. Meanwhile, our Agribusiness team forecasts growth of 3.0% in cocoa output as an increase in farmgate prices will stimulate production and reduce smuggling activity, providing tailwinds to exports next year.
However, we expect import growth to outpace exports, narrowing Ghana’s goods and services surplus. Moderating price pressures will improve purchasing power of households and boost demand for imported consumer products in 2024. In addition, stronger business activity – in part the result of the central bank slashing interest rates by a projected 600 basis points to 22.00% by year-end – and an anticipated recovery in the construction sector will increase demand for imported capital inputs and professional services. All told, we forecast that net exports will remove 0.7pp from headline growth in 2024, down from a positive contribution of 2.1pp in 2023.
Domestic Demand Will Tick Up In 2024, But Net Exports Will Drag On Growth
Ghana – Contribution To Real GDP Growth, pp
f = BMI forecast. Source: Ghana Statistical Service, BMI
Risks To Outlook
Risks to our economic growth forecasts are skewed to the downside. There is a possibility that inflation will remain hotter than our current projection assumes due to higher-than-expected global energy prices or a stagnation in the external debt restructuring process, which would cause another round of currency depreciation. Should this happen, the Bank of Ghana would likely keep interest rates higher for longer and public discontent with the macroeconomic predicament would result in more frequent protests and strikes. In this scenario, consumer spending and gross fixed capital formation would remain weaker in 2024 than our baseline scenario assumes.
Growth Outlook For 2024
Forecast 2023 2024 Notes
Real GDP, % chg 3.0 3.7 We forecast that economic growth in Ghana will accelerate in 2024, driven by stronger consumer activity and a recovery in fixed investment.
Private consumption, pp 2.6 3.0 A sharp moderation in consumer price inflation – in part the result of more favourable exchange rate dynamics – will strengthen household spending. That said, growth in private consumption will be capped by fiscal consolidation.
Government consumption, pp 0.4 0.5 We expect growth in government consumption to tick up in 2024, ahead of the December general election.
Fixed investment, pp -1.7 0.7 Fixed investment will start to recover in 2024 as inflation eases, business sentiment improves and the central bank slashes interest rates.
Net exports, pp 2.1 -0.7 Net exports will act as a drag on Ghana’s economy as a result of stronger demand for imported goods and
services.
Disclaimer: Ahotoronline.com is not liable for any damages resulting from the use of this information. Source: BMI
