Coronavirus led to both demand, supply shocks to the domestic economy – BoG

The economic impact of COVID-19 presented both demand and supply shocks to the domestic economy, Dr. Ernest Addison, Governor of the Bank of Ghana (BoG), has said.

He said this while delivering a speech at the University of Ghana Alumni Lecture, Great Hall, and the University of Ghana.

Dr. Addison explained that on the supply side, there were disruptions in productive activities as employees fell victim to the virus, while disruptions to global supply chains led to a shortage of raw materials and inputs for manufacturing activity, which led to the increased cost of production including costs associated with the adoption of new health and safety protocols.

On the demand side, he said, companies experienced weak consumer demand due to the closure of businesses and job losses. With these constraints, major businesses faced difficulties in honouring obligations such as staff compensation, suppliers’ credit, utility bills, and servicing loans with financial institutions.

“Fellow Alumni, the Covid-19 also impacted the economy as an external shock through the contraction of trade, fall in commodity prices, tourism and international capital flows."

“By the second quarter of the year, the full effect of the pandemic was showing in slower growth in domestic economic activity, adversely impacting livelihoods, and threatening to erode the economic and financial stability gains achieved over the preceding three years."

“The developments placed severe constraints on government finances, arising from significant revenue shortfalls on the back of weakened domestic economic activity and the collapse in international crude oil prices, coupled with increased government expenditures due to Covid-related spending."

“The large informal economy, which in the past used to provide a cushion to such shocks, this time around amplified the shock as the lockdowns brought a halt to informal activities as well."

“Therefore, providing a sense of security to market participants and the public required close coordination between various stakeholders and implementation of monetary, fiscal, and macroprudential policies to limit the impact of the pandemic on the broader economy,” he said.