Business conditions broadly stable during July

Business conditions in Ghana’s private sector were broadly stable again in July, mirroring the picture seen in June, an IHS Markit Ghana PMI survey has revealed

New orders picked up amid some signs of improving demand, but firms continued to lower output amid ongoing weakness caused by the coronavirus disease 2019 (COVID-19). A lack of pressure on capacity led to another reduction in staffing levels.

Purchase costs rose at a marked pace during the month, often reflecting higher fuel prices. In response, firms raised their selling prices for the third month running.

The headline seasonally adjusted Ghana PMI® posted 49.7 in July, unchanged from the reading in June and signalling stability of business conditions in the private sector for the second successive month.

New orders increased for the second month in a row during July, amid some signs of improving demand. That said, the rate of expansion was modest and slower than recorded during June.

Despite the recent pick-up in new orders, the severity of the COVID-19 downturn meant that underlying demand remained weak at the start of the third quarter. As a result, companies continued to reduce their business activity, extending the current period of decline to five months. The latest fall was modest and broadly in line with that seen in the previous month.

Companies also continued to scale back employment, albeit to the least extent in the current five-month sequence of job shedding. Spare capacity remained evident, with backlogs of work falling at a marked pace during July.

The rate of overall input cost inflation was sharp in July, quickening to the fastest in the year-to-date amid a marked increase in purchase prices. Higher purchase costs were linked to a number of factors, most notably higher fuel prices.

Also contributing to increases in purchase costs were material shortages and currency weakness.

In contrast to the picture for purchase prices, staff costs continued to fall in line with reduced workforce numbers.

Higher purchase costs led companies to raise their own selling prices in July, the third month running in which this has been the case. The rate of inflation quickened, but remained relatively muted.

As well as contributing to rising purchase prices, material shortages were linked to a further lengthening of suppliers’ delivery times. Border closures were also a factor behind longer lead times. That said, vendor performance deteriorated to a lesser extent than in June.

Fragile demand conditions led to a reluctance among firms in Ghana to hold inventories, thereby resulting in further reductions in both purchasing activity and stocks of purchases.

Hopes of a reduction in the prevalence of COVID-19 and return to more normal economic conditions led to optimism among companies regarding the 12-month outlook for activity. Moreover, sentiment strengthened to the highest since April 2018.

Commenting on the latest survey results, Andrew Harker, Economics Director at IHS Markit said:

“While Ghana’s economy seems to have left the worst of the COVID-19 downturn behind for now, the latest PMI data point to a return to stability rather than any strong rebound in output. Caution remains evident with regard to business activity, purchasing and employment, although companies are increasingly hopeful that the coming year will see the situation improve.

“Stronger cost inflation will not help matters, with companies already under pressure. Higher fuel prices were widely reported to have contributed to increasing cost burdens during July.”