Business confidence improves amid signs of downturn easing

Business conditions remained challenging in the private sector during January, although there were further signs that the worst of the current downturn has passed.

Inflationary pressures continued to affect the ability of firms to secure new business and raise activity, leading to further declines. Rates of contraction however moderated again, helped by softer inflation of input costs and output prices.

These tentative signs of improvement prompted a further pick-up in business confidence, while employment increased slightly.

The S&P Global Ghana Purchasing Managers’ Index remained below the 50.0 no-change mark in January, posting 47.2 from 47.0 in December. Business conditions have now deteriorated on a monthly basis throughout the past year. The latest decline was solid, albeit the least pronounced since July last year.

New business decreased solidly in January, with customers reportedly finding it difficult to fund purchases. That said, the fall in new business was the softest in six months.

Similarly, business activity declined at a weaker pace at the start of the year, although it was still marked amid continued price pressures.

Overall input costs rose sharply, but the rate of inflation eased to a six-month low as purchase prices increased at a pace much weaker than that seen in December last year. Some companies saw price pressures weaken due to the cedi’s improved position against the US dollar relative to that seen toward the end of last year. However, a renewed depreciation of the currency during January was the main factor behind higher purchase costs.

Staff costs continued to rise at a solid pace, as companies responded to higher living costs by increasing their employees’ pay.

In line with the picture for purchase prices, the rate of charge inflation slowed markedly at start of the year and was well below November’s survey peak. In fact, the rise in charges was the slowest since December 2021.

Hopes that the situation regarding exchange rates and inflation will improve – helping a return to more normal business conditions, supported growing confidence in the year ahead outlook for business activity. Optimism hit a one-year high, as 81% of panellists predicted an expansion in output.

With confidence up, companies made efforts to fill staffing vacancies and raised employment for the second month running. The rate of job creation was slight, but faster than seen in December.

Part of the increase in employment was in order to prevent a build-up in backlogs of work. Companies were successful in this regard, but outstanding business decreased at the softest pace in seven months.

With demand remaining weak, companies lowered their purchasing activity again in January at a modest pace that was the softest in six months. Meanwhile, stocks of purchases fell solidly as firms reported a reluctance to hold inventories.

Finally, suppliers’ delivery times continued to shorten – extending the current sequence of improving vendor performance to a year-and-a-half. Panellists reported strong competition among suppliers supporting improvements in lead times.

Andrew Harker, Economics Director at S&P Global Market Intelligence said: “While times remained tough for firms in Ghana at start of the year as price pressures continued to limit demand, there were further tentative signs that the worst of the current downturn has passed. Rates of purchase cost and selling price inflation moderated further, leading to softer declines in output and new orders.

“These improvements, and hopes that firms will face a more normal business environment over the coming year, led confidence to hit a one-year high. While there are likely to be further turbulent times ahead, a sign of the positive sentiment was that companies expanded their staffing levels despite current workloads continuing to fall.”