Economy slows as inflation jumps

The economy’s pace of expansion slowed in the first quarter of 2013 from a year ago, as consumer inflation jumped to 11.1 percent in May -- drifting further from the Central Bank’s single-digit comfort zone.

Gross Domestic Product expanded at 6.7 percent between January-March from 10.3 percent in the first quarter of 2012, and May inflation was revised from 10.9 percent to 11.1 percent using a widened inflation basket and a new Consumer Price Index (CPI) base-year, the Ghana Statistical Service (GSS) said on Wednesday.

Services continue to lubricate the country’s economic engine as GDP in the sector increased by 12 percent year-on-year in the period, with agriculture growing by 1.1 percent and industry contracting by 0.8 percent. On quarter-on-quarter basis, GDP slumped by 3.1 percent.

The adjusted quarter-on-quarter data also showed crop production, including cocoa, shrinking by 4.9 percent and a 5 percent contraction in the forestry sector. Mining and quarrying grew by 1.4 percent, but construction and manufacturing slowed by 6.1 percent and 1.5 percent respectively.

Declines were also recorded in financial and insurance activities (-4.8 percent), information and communication (-1.5 percent), and hotel and restaurants (-3.6 percent). Public administration, health and other personal services however grew healthily, at 14 percent, 6.1 percent and 10 percent respectively in quarter-on-quarter terms.

Government has forecast an expansion of 8 percent in GDP this year, and is aiming to tame a significant deficit that has been fuelling inflationary pressure. The GSS’s new inflation data show that the figure rose from 10.1 percent in January to 11.1 percent in May.

The inflation figures were revised after the GSS increased the items in the basket from 242 to 267, dropping some constituents while adding others, and changed the weights to reflect current consumption patterns. The CPI base year was also changed from 2002 to 2012.

“Household consumption patterns change over time in response to a change in products and incomes. It is therefore necessary to revise the rates regularly so as to bring them in line with the current spending patterns of the population,” said acting Government Statistician Dr. Philomena Nyarko.

She said even as consumer inflation rose, producer inflation decreased to 8.6 percent in May from 10.6 percent in April. The decline in international gold prices caused a contraction of 1.9 percent in mining and quarrying producer inflation, she said.

The price of gold, the economy’s number-one export earner, has slumped by more than 26 percent this year, and the cedi has depreciated by more than 4 percent, weighed down by strong foreign exchange demand and the fall in commodity prices.

Finance Minister Seth Terkper said in May that apart from the shortfall in fiscal revenues in the first four months of the year, a further risk to Government’s budget emanates from falling international commodity prices and import demand pressures.

Government, he said, will streamline its expenditure and request Parliament to enact new tax measures to keep its 9 percent of GDP fiscal deficit target on track. The deficit between January-April, Mr. Terkper said, was GH¢3.4billion-equivalent to 3.8 percent of GDP but higher than the target of GH¢2.7billion, or 3 percent of GDP.

Spending on wages in the period was GH¢3billion against a projection of GH¢2.8billion, while interest expenditure amounted to GH¢1.6billion compared to an estimate of GH¢1.1billion.

Most of the new fiscal measures, Mr. Terkper said, will have sunset clauses because they are only meant to fix the current problems.