Bank of Ghana index points to economic recovery

Data released by the Bank of Ghana this week suggests that the national economy has entered a recovery phase right from July, following easing of restrictions which inevitably also promoted economic activity as well.

The central bank’s 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.

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.

“Consumer spending, industrial consumption of electricity, and construction activities have all reached pre-lockdown levels, while tourist arrivals and port harbour activities are gradually edging upwards,” the Governor of the Central Bank, Dr. Ernest Addison explained in a statement following the meeting of the Monetary Policy Committee (MPC) of BoG.

However, in contrast, imports, exports, and private sector contributions to social security, remain below pre-lockdown levels.

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,” the Governor said.

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.