GDP Growth: Ghana Projected to Outperform Peers in West Africa
Nana Akufo-Addo, Ghana's President

GDP Growth: Ghana Projected to Outperform Peers in West Africa

Ghana’s gross domestic product (GDP) growth rebound is projected to come stronger above peers in the West Africa region, according to Fitch Solutions.

In its Africa Monitor report, the firm indicates expectation that Ghana’s real GDP growth will slow to 1.2% year on year in 2020 because of the Covid-19 pandemic and associated global downturn.

However, it added that Ghana will outperform regional peers due to its relatively short lockdown, effective stimulus measures and steady performance by non-oil export sectors.

“We expect economic growth to accelerate to 4.8% in 2021, buoyed by rising exports, and recoveries in private consumption and fixed investment.

“We expect Ghana’s real GDP growth to slow by 1.2% in 2020 because of the Covid-19 pandemic and associated global downturn”, it added.

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The relatively mild slowdown compares favourably with peer economies such as Nigeria, where Fitch Solutions expects a 6.0% contraction, and the Sub-Saharan Africa region, where it forecasts real GDP to fall by 4.1%.

The African Monitor report stated that Ghana’s stronger performance is partly due to net exports holding up well.

The country’s net exports will contribute 0.9 percentage points to headline GDP growth in 2020, with a fall in the value of goods and services imports offsetting the moderate fall in exports, Fitch Solutions said.

It noted that the fall in export was caused by the slowdown in global demand for Ghana’s commodity exports – gold, cocoa and oil comprised 77.7% of merchandise exports in 2019.

Though the value of Ghana’s net oil exports will slump by 41.7% year on year on account of low prices, the impact will be softened by strong gold prices.

It noted that the strong gold prices will contribute to the value of gold exports rising by 14.8% and cap the decline in overall merchandise exports to a relatively modest 7.9%.

“In contrast, we expect heavily oil-dependent Nigeria will experience a decline of 35.1% in merchandise exports.

“Ghana’s relatively short lockdown period and official stimulus measures will also soften the economic slowdown”, Fitch Solutions added.

The government was among the first in the region to implement lockdown restrictions, resulting in declines of new confirmed Covid-19 infections since May, and remaining at fairly stable levels through the rest of Q2-2020 and Q3-2020.

Meanwhile, there was a brief spike in new cases in July.

Fitch Solutions said though the lockdown caused real GDP to contract in Q2-2020 – by 0.8% on a seasonally adjusted quarter on quarter basis and by 3.2% year on year – the relatively early lifting of restrictions is likely to have facilitated a steady recovery in Q3-2020.

High-frequency data indicate a steady improvement in domestic demand and sentiment during the quarter.

Ghana’s Purchasing Managers’ Index, having fallen to an all-time low of 31.7 in April, averaged 50.8 in Q3-2020, rising to 53.1 in October.

Fitch Solutions explained that readings above 50 indicate an expansion in private sector activity.

It said official stimulus measures will further soften the impact of the pandemic on growth and lay the foundations for the economic recovery.

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In mid-March 2020, the Bank of Ghana cut its benchmark interest rate by 150 basis points (bps) to 14.50%.

Meanwhile in its revised budget, the government unveiled an emergency spending package to address the pandemic.

This was also to support domestic households and businesses, and invest in infrastructure that will likely result in total expenditure rising by 31.5% in 2020 to GHS92.2 billion.

“Consequently, we expect government consumption will contribute 1.0pp to GDP growth in 2020.

The stimulus package includes subsidies and direct supports for local households, is expected to contribute to private consumption continuing to rise, albeit by a modest 0.5% and contribute 0.3 percentage point to growth.

“We expect real GDP to grow by a robust 4.8% year on year in 2021, buoyed by the strengthening global and domestic economic context.

“Rising demand for Ghana’s export commodities, namely gold, oil and cocoa on the back rebounding global GDP growth of 5.4% will likely result in the country’s merchandise exports rising by 6.5% year on year”, Fitch Solutions stated.

It also expects the government’s decision to hike the farm gate price for cocoa by 28.0% from Q4-2020 will act as a production incentive, contributing to output increasing by 5.0% to 837,000 tonnes in 2021.

Fitch Solutions thinks this will offset the impact of softer global cocoa prices on the value of cocoa exports.

“Our Agribusiness team expects cocoa prices will weaken to USD1,775.0/tonne from USD1,825.0/tonne in 2020”, it added.

It was however noted that Gold output is also likely to rise, assisted by new investments in production capacity, while the value of oil exports will be supported by a modest uptick in global prices

“Our Oil & Gas team forecasts Brent crude will average USD48.0/bbl in 2021”, the report noted.

Additionally, its expects services exports to return to growth in 2021, expanding by 7.0%, due to gradual recovery in the tourism sector as remaining border restrictions are lifted and international flights increase.

“While imports are also expected to rise due to higher domestic demand, net exports are likely to remain positive, and contribute 1.6pp to GDP growth in 2021.

“We expect domestic commercial activity to gather pace in the coming quarters, as the remaining social distancing measures are removed and business sentiment builds on the recovery that began in Q3-2020”, the report said.

Fitch Solutions experts are also expecting that the uptick will result in improving labour market conditions and rising consumer confidence, and see private consumption growth rebound to 3.4% in 2021 and contribute 2.5pp to headline GDP.

With the relatively stable dollar exchange rate and moderating inflation, Fitch Solutions forecast CPI will average 8.7%.

This is below the 13.1% annual average seen in the five years to 2019 –and this is expected to support households’ spending power, as will the continuation of the government’s package of subsidies and supports under its post-Covid-19 recovery programme.

However, the fiscal spending is set to slow resulting in government consumption growing by a modest 1.2%, which Fitch Solutions thinks will add just 0.1pp to economic growth.

Overall, it noted the government plans for a procurement budget equivalent to 1.6% of GDP in 2021, down from 2.2% in 2020.

“Policy continuity following the December 2020 general election will provide tailwinds to fixed investment, which we expect to grow by 3.0% in 2021 and contribute 0.6 percentage point to real GDP”, Fitch Solutions stated.

GDP Growth: Ghana Projected to Outperform Peers in West Africa