Industry, services hit by erratic economy

GDP data issued this week indicate that severe power disruptions and macroeconomic volatility have taken their toll on the industrial and services sector, leaving agriculture as the main anchor of economic activity in 2014.

According to the Ghana Statistical Service (GSS), economic growth fell to 6.5 percent year-on-year in the first quarter from 9 percent a year ago and to 5.3 percent in the second quarter from 10.8 percent a year ago, with services and industry recording marked slowdowns.

Output from services grew at 0.8 percent in the first quarter and 2.1 percent in the second quarter. These are rates of expansion that pale in comparison to the same period of 2013, when services jumped by 12 percent and 10.9 percent respectively.

Industry also grew much more slowly than a year ago, recording an expansion of 2.8 percent in the first quarter and a 0.5 percent contraction in the second quarter. A year ago, the sector grew by 8.1 percent and 16 percent in the first and second quarters respectively.

Agriculture, on the other hand, expanded by 7.6 percent in January-March and 8.5 percent in April-June. The data give an indication of the damage to growth -- wrought by the parlous electricity situation and severe macroeconomic volatility -- for sectors that were previously the drivers of economic growth.

Manufacturing seems to have borne the brunt of the impact, with the sub-sector contracting at an annual rate of 19 percent in the first quarter and 11 percent in the second quarter.

These trends led the GSS to cut the country’s official growth target for 2014 by 0.2 basis points, with real GDP now expected to increase by 6.9 percent instead of 7.1 percent.

The International Monetary Fund (IMF), which is currently in talks with the government over a possible macroeconomic stabilisation programme, has forecast a slower expansion of 4.5 percent.

Explaining the trends Dr. Philomena Nyarko, head of the GSS, said the manufacturing sub-sector was hit by exchange rate losses together with low production by the state-owned Tema Oil Refinery (TOR).

The shortage of electricity, and rampant blackouts which never seem to be addressed, also hammered manufacturing firms and energy-dependent services companies.

A growth slowdown is probably the last thing the economy needs in a time of high deficits and interest rates which have caused the public debt to swell rapidly. High consumer inflation, which has increased for 13 consecutive months to 16.5 percent in September, is also hurting household living standards.

The IMF has called for more spending curbs, in addition to measures implemented since 2013 by government, to reduce the fiscal deficit more quickly and stabilise public debt ratios.

The government has projected a deficit of 8.5 percent of GDP this year, but the Fund has said unless more is done quickly to limit spending -- especially on wages, subsidies and interest -- the deficit could widen to 9.8 percent of GDP and it may take longer for the country to reach sustainable levels.

A bout of severe currency depreciation in the first eight months of the year has eased, but “Ghana continues to face significant domestic and external vulnerabilities on the back of a large fiscal deficit, a slowdown in economic growth and rising inflation,” the IMF said on September 26.

“These vulnerabilities are putting Ghana’s medium-term prospects at risk,” it warned.