Business confidence improves amid stable currency, IMF deal
The end of 2022 saw a positive shift in business sentiments, leading to increased optimism in the economy. The stability of the local currency, the cedi, and the staff-level agreement (SLA) with the International Monetary Fund (IMF) played a significant role in this development.
The Bank of Ghana’s latest survey aligns with the results of the Ghana Purchasing Managers Index (PMI) conducted during the same period. The PMI improved to 47.0% in December 2022 from 44.9% in November.
According to the January 2023 summary of economic and financial data, the latest business confidence survey, conducted in December 2022, showed a positive shift in business optimism, registering at 75.7%. Despite this improvement, the survey remained lower compared to the same period in 2021 at 98.4%.
Currency analysts have noted that the recent agreement between the government and key bondholders, the Ghana Association of Bankers (GAB), Ghana Insurers Association (GIA) and Ghana Securities Industry Association (GSIA), will provide support for the local currency. The final agreement with the IMF, expected by the end of Q1 2023, will release the first tranche from the $3 billion IMF deal.
The central bank reported that business sentiments improved due to the achievement of short-term targets and positive outlook for companies and industries. This trend was reflected in the improvement of the PMI to 47.0% in December 2022 from 44.9% in November.
The latest confidence survey conducted by the Bank of Ghana showed a marginal improvement in consumer confidence, due to recent reductions in ex-pump petroleum prices and transportation fares.
A final agreement with the IMF, contingent on the Domestic Debt Exchange Programme and external debt restructuring, will further boost confidence and help restore fiscal and debt sustainability, bringing down inflation and stabilizing the currency.
The Bank of Ghana reported that domestic growth conditions softened in 2022 and are projected to remain below potential over the near-term due to elevated inflation levels.
Inflation remained elevated in 2022, driven by demand pressures and supply shocks. The headline inflation rose to 54.1% in December 2022 from 50.3% in November.
Despite the slight improvement in consumer and business sentiments, the updated Composite Index of Economic Activity (CIEA) showed a continued dip in economic activity. Credit to the private sector rose in nominal terms, but was moderated by price pressures.
The Bank’s high frequency indicators recorded a moderation in economic activity in the fourth quarter, with the real CIEA contracting by 6.2% in November 2022 compared to a growth of 10.2% in the same period in 2021.
The global economic outlook remains uncertain due to broad-based and elevated inflation, policy tightening, worsening financing conditions, and lingering geopolitical tensions. These factors are likely to persist through the first half of 2023, affecting confidence and household disposable incomes in advanced and emerging market economies.
