Data released by the Bank of Ghana last week indicates that the socio-economic restrictions – including a three week lock down of Accra and Kumasi – imposed by government during the second quarter of the year resulted in the deepest short term economic contraction experienced by Ghana in the past nearly 40 years.
The BoG’s Composite Index of Economic Activity (CIEA), measured on a year on year basis, contracted sharply in May 2020 by 10.6 percent. This is a complete reversal of the 5.6 percent growth in the index recorded over the previous 12 month period.
While the CIEA is not a direct measure of economic growth – it tracks changes in the amount of economic activity, as different from measuring changes in value added, which the Ghana Statistical Service uses for the official measurement of Gross Domestic Product growth – the two have tended to be quite closely correlated, rarely deviating from each other by much more than 100 basis points (one percentage point).
The sheer depth of the contraction in the CIEA for May, therefore suggests that actual GDP growth will also be deeply negative and a recovery into positive territory as soon as the following month of June is highly unlikely. Consequently, GDP growth for the second quarter of this year is most likely to be significantly negative, the first time Ghana has reported negative quarterly growth since it started liberalizing its economy through an International Monetary Fund and World Bank supervised Economic Recovery Programme in the mid 1980s.
Despite this short term phenomenon however, there is still the possibility that Ghana can achieve marginal economic growth this year. Instructively, Finance Minister Ken Ofori-Atta forecasted that growth will fall to just 0.9 percent this year, in his recent mid-year budget review presentation to Parliament; it is most likely that this forecast was at least in part guided by the latest CIEA data.
According to BoG Governor Dr Ernest Addison, “high frequency data shows that the contraction was broad-based and reflects the impact of the COVID 19 pandemic on the domestic economy. Industrial consumption of electricity fell as manufacturing companies worked below capacity. While tourist arrivals have remained at a standstill due to the border closure and travel restrictions, imports, domestic VAT and exports have all been impacted negatively. However, port activity Deposit Money Banks credit to the private sector and SSNIT contributions are beginning to record some modest gains – a sign of some early green shoots.”
The severity of the contraction in economic activity in April and May, and the consequent inevitable accompanying contraction in actual economic output, may be a compelling reason why government is easing its erstwhile social and economic restrictions at a pace that many prominent medical experts – and the Ghana Medical Association itself – regards as too hurried, despite its being done in phases.
It is now hoped that the phased resumption of full economic and social activities, supported by government’s ongoing economic stimulus programmes will propel economic growth over the second half of the year that is as sharp as the contraction during the second quarter.