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Lowered expectations for continued economic growth persist in the financial market

Despite Q2 economic results of 2022 surpassing expectations, financial analysts continue to predict subpar short-term growth.

Despite Q2 economic results of 2022 surpassing expectations, financial analysts continue to predict...
Despite Q2 economic results of 2022 surpassing expectations, financial analysts continue to predict a weak near-term growth trend.

Lowered expectations for continued economic growth persist in the financial market

Ghana's Economy: Mixed Q2 Results Amid Macroeconomic Challenges

Despite Q2 2022 economic results that surpassed projections, market watchers remain wary of weak near-term growth. The Ghana Statistical Service (GSS) recently released provisional gross domestic product (GDP) figures showing a 4.8% increase in oil and gas growth for the said quarter, compared to the 3.4% recorded in Q1 2022.

This positive growth is, however, overshadowed by the ongoing macroeconomic crisis, characterized by accelerating inflation, cedi depreciation against the US dollar, and a stringent monetary policy environment that has amplified borrowing costs. In response, the Bank of Ghana increased its benchmark rate by 750 basis points to 22%, aiming to quell inflation and restore expectations.

Raising concerns about the economy's future,Constant Capital – a broker-dealer – warned that the central bank's hawkish monetary stance may have a more pronounced effect in the coming quarters. According to Constant Capital, boosted inflation, currently at 33.9%, will contribute to growth constraints.

Several factors, including depreciation and international factors, such as the prolonged Russia-Ukraine conflict, global supply chain disruptions, volatile commodity prices, inflation, aggressive stances by major central banks, and US recession risks, are predicted to negatively impact Ghana's growth.

Despite these challenges, Constant Capital positively noted that Ghana's revised government growth projection of 3.7% in 2022 might be achievable in light of the Q2-2022 growth outturn.

Apakan Securities, another market observer, affirmed the strong performance of the economy in Q2-2022, given the worsened macroeconomic environment. However, the securities firm believes that the economy's growth outlook will lean towards the downside, given the pervasive macroeconomic risks.

August's S&P Global Ghana PMI came in at 45.9, down from 48.80 in July, indicating another month of declining private sector activity.

Sectoral Performance

Although it grew by 4.6% year over year in Q2 2022, the agricultural sector exhibited a slower growth compared to Q1 2022 and the same period last year due to rising fertilizer prices and supply limitations resulting from the Russia-Ukraine conflict.

The industrial sector, which had experienced a series of quarterly contractions in the previous year, showed strong recovery in Q2 2022 with a growth of 4.6% year over year. Both the manufacturing and mining and quarrying sub-sectors contributed to this recovery.

The services sector displayed robust activity in Q2 2022, growing at 5.2% year over year, with positive contributions from the education, health, social work, and information and communication sub-sectors. However, the water supply and sewage sub-sectors experienced declines for the first time in five consecutive quarters.

In conclusion, while Ghana's economy faced significant hurdles in Q2 2022, it remains resilient and demonstrates a positive trajectory. Focusing on debt management and inflation control will be critical to sustaining future growth.

  1. The ongoing macroeconomic challenges, such as accelerating inflation and cedi depreciation, have contributed to a stringent monetary policy environment that amplifies borrowing costs.
  2. Despite the positive growth in the oil and gas sector, the agricultural sector exhibited a slower growth due to rising fertilizer prices and supply limitations resulting from the Russia-Ukraine conflict.
  3. Amid these economic hurdles, Apakan Securities affirmed the strong performance of the economy in Q2-2022 but believes that the economy's growth outlook will lean towards the downside due to pervasive macroeconomic risks.
  4. To sustain future growth, focusing on debt management and inflation control will be critical, as highlighted in conclusion by market observers, while education, health, social work, and information and communication sub-sectors contributed positively to the services sector's robust activity in Q2 2022.

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