Analysts at GCB Capital Research have predicted that despite an impressive 4.2 percent real Gross Domestic Product (GDP) growth recorded in the first quarter of 2023, economic activity is expected to remain unimpressive for the rest of the year.
Several key factors contribute to this subdued outlook, including the composite index of economic activity, which has been on a contracting trend for the past seven months, the report indicated.
This continued downturn suggests a potential slowdown in economic momentum, posing challenges to sustained growth.
Consumer and business confidence surveys also present a mixed picture, reflecting the prevailing uncertain macroeconomic climate.
As confidence wavers, both consumers and businesses are adopting a cautious approach to spending and investment, which could further drag down economic activity.
“We expect the real sector growth to remain depressed throughout 2023. The composite index of economic activity has contracted in the last seven months – driven by the slowdown in leading indicators such as port activity, cement sales, private sector credit and imports,” GCB Capital stated.
Moreover, tightening credit conditions are adding to concerns, as businesses and consumers find it more challenging to borrow, which may restrict investment and consumer spending, hampering economic growth.
The slowing industrial activity is identified as a pivotal contributor to the subdued forecast. As the industrial sector plays a crucial role in driving economic expansion, any slowdown in this area could have far-reaching effects on overall growth and employment opportunities.
The report notes that these challenges may continue to weigh on the real sector, encompassing tangible goods-producing industries, for the remainder of 2023. Growth and employment creation in this sector are expected to remain subdued due to tightening credit conditions and slowing industrial activity.
Despite the challenges, there are positive signs of improvement in the external sector. Factors such as a temporary external debt service suspension have supported the relative strength of the cedi. Although export receipts declined year-on-year due to lower oil prices and output, a reduction in imports resulted in a larger merchandise trade surplus and a surplus in the current account.
These positive developments have impacted the balance of payments, slowing the rate of reserve depletion during the first half of 2023. Ghana’s Gross International Reserves have risen, partly due to IMF disbursements and the successful ‘gold reserve’ policy.
Looking ahead, GCB Capital remains optimistic about the second half of 2023, expecting more IMF disbursements and funding to boost reserves and maintain the cedi’s resilience.
The fiscal front, however, still faces challenges with revenue shortfalls, although fiscal consolidation is on track due to stringent expenditure controls and interest savings from the domestic debt exchange program.
Despite potential shocks, the overall outlook for the second half of 2023 is cautiously positive, with the hope that the measures taken will positively impact the country’s economic performance.