Fitch projects growth target may not be achieved due to rising inflation

Inflation 1 695x430 1 695x375 Inflation hits 23.6%

Fri, 20 May 2022 Source: www.ghanaweb.com

Inflation to cause drop in consumption

Declining business confidence points to a modestly weaker outlook for gross fixed capital formation, Report

BoG holds MPC meeting

A recent monthly outlook projection by Fitch has indicated that the country’s growth may fall short of the 5.8% rate indicated by government due to increasing inflation and fiscal tightening coupled with reducing investor confidence.

These factors are however expected to cause a drop in private consumption and investment.

The April 2022 sub-Saharan Africa Monthly Outlook showed that real GDP growth in Ghana will slow to 4.4% in 2022 from 5.4% in 2021.

“While private consumption will remain the key driver of growth, households will face significant headwinds from high inflation and fiscal consolidation measures, including the recent implementation of a 1.5% tax on electronic payments,” the report states.

Also, the report highlights that declining business confidence may result in a modestly weaker outlook for gross fixed capital formation.

The report also noted that the Ghanaian purchasing managers’ index (PMI) stood at 47.2 in March 2022, below the neutral threshold of 50.

Nonetheless, the S&P Global Ghana PMI reported an increase to 48.3 in April 2022 from the previous month.

The Bank of Ghana’s Monetary Policy Committee held its 106th meeting from May 18 to May 20, 2022.

The Governor of the Bank of Ghana has noted that the current inflation rate puts the committee in a position that needs tough decision-making by the committee.

Meanwhile, senior Analyst with Databank, Courage Kingsley Martey in an interview with the B&FT said, “With inflation proving intractable at this point, we believe the Bank of Ghana will prioritise its price stability mandate and hike as and when necessary… albeit with a finger on the growth pulse. Against this backdrop, we slashed our growth forecast for 2022 to between 4.5% and 5.5% with a midpoint of 5%,”.

“Indeed, our forecast implies that Ghanaian growth will remain below trend – growth averaged 5.8% over 2015-2019 in 2022.

“The adoption of a 1.5% tax on electronic payments, including mobile money transactions, bank transfers and merchant payments, will further cap household spending growth. Against this backdrop, we forecast private final consumption to expand at 4% in 2022, slightly below the five-year pre-pandemic average of 4.2% and contributing 2.5 percentage points (pp) to headline growth,” the report added.

Source: www.ghanaweb.com
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