Economic analysts at Standard Bank, the parent company of Stanbic Bank Ghana, have indicated that Ghana’s economy is likely to see a full recovery in 2024 due to the impact of COVID-19. This was contained in the May 2020 edition of the bank’s African Monthly Report (AMR).
According to the report, the 6–8 percent year-on-year growth that seemed reasonable at the beginning of the year is no longer likely.
“COVID-19 undoubtedly will affect economic growth meaningfully. Whereas growth of 6% – 8% y/y in the next 2 – 3 years seemed reasonable before, now 1.0% y/y seems likely this year, with a recovery only next year. In our base case, we see economic growth topping 5.0% y/y only by 2022,” the report said.
The report further indicated that the economic situation will make it difficult for the government to control the fiscal gap, which will in turn affect the strength of the local currency.
The report noted that “Our bear scenario sees an economic contraction this year, then recovering to over 5.0% y/y growth by 2024. In this scenario, the government would find it hard to arrest a widening fiscal deficit, triggering significant portfolio outflows that would lead to faster depreciation of the Ghana Cedi than in our base scenario”.
Furthermore, the report indicated that the fall in oil prices will further undermine long-term economic growth particularly because oil revenues are a significant part of government revenue.
According to the report “Naturally, given the oil price collapse, and the flux in that market, Ghana’s oil production will be restrained too. A significant source of uncertainty is how long oil prices will remain as depressed. The longer so, the greater the likelihood that investment in the oil sector will dwindle, undermining long-term growth”.
The report continued that “Oil revenues are a significant source of government revenue, at 5.5% of total revenue, with dividends from oil accounting for an additional 6.8% of revenue. Also, consider the service suppliers to the oil industry. Were oil prices to remain depressed for long, overall economic activity would suffer”.
These conditions notwithstanding, the report predicts less pressure on inflation this year and foresees the Central Bank’s Monetary Policy Committee easing its policy stance in a bid to boost economic activity. The report also sees strong official financial inflows, which will likely leave the country’s balance of payment in a healthy position this year despite pressure on the current account.
The African Markets Report is a monthly report issued by the Standard Bank Group, the parent company of Stanbic Bank Ghana and focuses on the economic and financial outlook of African countries. The report also reviews current economic situations and makes short to medium-term predictions about the economies of African countries.
By Adnan Adams Mohammed