The First Deputy Governor of the Bank of Ghana, Maxwell Opoku-Afari, has given an indication that, contrary to fears that the economy will take some time before getting back on track, available data suggest that it has already started recovering.
This follows the easing of restrictions on some sectors of the economy, as the Covid-19 positive cases continue to drop.
The BoG’s Composite Index of Economic Activity (CIEA) recorded a recovery, in real terms of 3.6 per cent for July 2020, compared with a contraction of 10.6 per cent in May.
“What we have seen at the central bank and one of the advantages we have is to have access to what we call High Frequency Leading Indicators. Putting all those High Frequency Leading Indicators together, we have been able to put together what we call the Composite Index of Economic Activity, which helps us track short-term dynamics in economic activities and gives us a sense of where economic activity is going to.
“Even though we saw a contraction in the second quarter, the data that we are picking from the Composite Index Economic Activity and High Frequency data, including credit to the private sector, manufacturing, sales, and a few other things shows that we are beginning to see some significant recovery already in the first few months of the third quarter up to September and in fact throughout the third quarter,” Dr Opoku-Afari stated.
Significant
Providing an update on Ghana’s economy on Accra-based Mx24 TV, he added: “This recovery is quite significant, to the extent that we think that growth will be positive in the third quarter.”
“If you put it that way, then the leading indicators is pointing to what we will call a V-shaped recovery because of the significant negative impact we expected as a result of the lockdown, as we expected the restrictions to be prolonged but we saw that there was a gradual lifting of those restrictions.
“This meant that the impact on economic activities had not been as severe, even though it is a contraction because -3.2 is not a small contraction, but to have a turnaround in the third quarter shows that the recovery is going to be more of a V-shape than a U or a trapezoid,” he added.
Sustained confidence
After the recent Monetary Policy Committee (MPC) meeting, Governor Dr Ernest Addison said consumer spending, industrial consumption of electricity and construction activities have all reached pre-lockdown levels, “while tourist arrivals and port harbour activities are gradually edging upwards.”
“The Ghana Purchasing Managers Index, which gauges the rate of inventory accumulation by managers of private sector firms and measures dynamics in economic activity, points to a steady rise in business activity since April 2020,” the Governor said.
He added that “a sustained level in consumer and business confidence, broad-based growth in the indicators of the CIEA are all supportive of positive growth conditions in the outlook.”
The central bank estimates that growth in 2020 will be between 2.0 per cent and 2.5 per cent.
GSS and CIEA
Figures from the Ghana Statistical Service (GSS) suggest that the economy contracted by 3.2 per cent in the second quarter of this year, a decline from the 5.7 percentage growth recorded during the same period in 2019.
Unlike Gross Domestic Product growth, which tracks growth in economic value in the economy, the BoG’s CIEA measures changes in the level of economic activity.
While the two produce different results in quantitative terms, they are correlated with regard to direction, since it is economic activity that generates economic value. Thus, growth in the CIEA, as announced by the BoG, has always been matched by growth in GDP, which is released later by the GSS.
In addition to the positive trends in the CIEA, other indicators monitored by the Bank of Ghana also point to signs of a recovery. With the exception of workplace clusters, which still remains below baseline, all other indicators embodied in the google mobility data – commuting and travelling, visit to supermarkets and pharmacy, and residential activity – have moved above baseline.
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