Private sector shows resilience as inflation eases, driving business expansion
Ghana’s private sector experienced improved business conditions in May, supported by a further softening of inflationary pressures. This led to stronger expansions in output, new orders, and purchasing activity, ultimately brightening the business outlook. These findings were reported in the S&P Global Ghana Purchasing Managers’ Index™(PMI), which remained unchanged at 51.3 in May, signaling an improvement in business conditions for the fourth consecutive month.
One notable theme observed in the PMI survey was the positive impact of reduced price pressures on customer demand and overall activity in the private sector. Although companies continued to increase their selling prices, the rate of inflation eased for the sixth consecutive month, reaching its softest level in over two years.
The slower increase in selling prices mirrored the trend seen in input costs, with purchase prices and staff costs rising at the softest rates in 30 and four months, respectively. Firms attributing rising purchase costs to higher raw material prices and exchange rate fluctuations, while increases in employee expenses were often due to higher living costs.
With inflationary pressures easing, firms were able to secure new business at an accelerated pace. New orders increased significantly for the fourth consecutive month, reaching the fastest rate since September 2021. As a result, companies increased their business activity at the fastest pace in 20 months, extending the current growth sequence.
Despite rising demand for inputs, better material availability and supplier competition led to a marked reduction in lead times for input deliveries. In fact, supplier performance reached its highest level in the history of the survey. This improvement in purchasing activity translated into an increase in input stocks, as firms sought to align their inventories with higher new orders and positive expectations for the future.
While staffing levels increased for the sixth consecutive month, the rate of job creation remained marginal and was the joint-slowest in 2023 thus far. However, the growth in purchasing activity was more positive, reaching a 31-month high.
Looking ahead, sentiment regarding the 12-month outlook for business activity improved to the highest level since January. Firms expressed optimism that prices and exchange rates would remain relatively stable in the coming year, and there was a belief that the deal with the International Monetary Fund (IMF) would support economic activity. Approximately 74% of respondents were optimistic that output would be higher than current levels in 12 months’ time.
Andrew Harker, Economics Director at S&P Global Market Intelligence, emphasized that the PMI data indicated the continued recovery of Ghana’s private sector in the second quarter. The survey’s price indices suggested a sustained slowdown in inflation, which served as a catalyst for the recovery and enabled firms to secure volumes of new business. While there is still progress to be made before business conditions become more comfortable, the data from May indicated an economy gradually moving in the right direction.
