Economic growth in Ghana will pick up in 2024 following weak Q3 2023 – Fitch Solutions
Fitch Solutions says it forecasts the Ghanaian economy to expand by 3.5% in 2024, up from a weak 2.7% in 2023. National accounts data published by Ghana Statistical Service shows that economic growth decelerated sharply to just 2.0% y-o-y in Q323 – from 3.2% in the preceding quarter – marking the weakest outturn since Q320 when the economy contracted by 3.5% due to the Covid-19 pandemic.
The slowdown in growth was primarily caused by a deeper contraction in the secondary sector – as a result of a downturn in the oil and gas industry – and weaker conditions in the services industry. As the Q323 growth print came in below our (and consensus) expectations, we have revised down our 2023 real GDP forecast from 3.0% to 2.7%, and our 2024 forecast from 3.7% to 3.5%.
Growth in the final quarter of 2023 will remain subdued
The research agency notes thatGhana’s purchasing managers’ index (PMI) for October and November remained broadly in line with Q323 – averaging 51.1 – pointing to only a slight expansion in the manufacturing sector (PMI values above 50 represent an expansion).
Meanwhile, both consumer and business confidence remained subdued going into Q423, suggesting that a notable recovery in domestic demand is unlikely at the end of 2023.
Private Consumption Will Drive Growth In 2024
“We expect that the Ghanaian economy will enter a recovery phase in 2024, driven by stronger private consumption. Soaring consumer price inflation over 2022-23 – due to the sharp sell-off of the Ghanaian cedi – weakened purchasing power of households and weighed on domestic consumption.
“However, we expect that price growth will moderate from an average of 40.3% in 2023 to 17.8% in 2024 driven by statistical base effects and more favourable exchange rate dynamics, notes Fitch Solutions.
“Indeed, we expect that the authorities will make progress regarding the restructuring of Ghana’s external debt under the G20 Common Framework in the coming quarters.
“We anticipate that an agreement with bilateral creditors will be reached in early 2024 and a deal with commercial creditors by mid-2024, which will improve investor sentiment towards Ghanaian assets, improve capital inflows and provide support to the cedi, which we forecast to strengthen by an average of 0.2% against the USD over 2024,” added Fitch Solutions.
According to Fitch, a more expansionary fiscal stance will inject additional demand into the economy, asserting that while authorities have confirmed their commitment to implementing fiscal reforms in line with the IMF programme, it anticipates significant public expenditure overruns ahead of the December 2024 general election, particularly given that the ruling New Patriotic Party (NPP) trails behind in the polls.
Indeed, since the start of the century, public expenditure as a share of GDP increased by an average of 3.0 percentage points during election years. reflecting the government’s tendency to subsidise utilities and implement social welfare programs to garner public support.
“We anticipate that such measures will be implemented again in 2024, improving disposable incomes and stimulating household spending. All told, we forecast private consumption growth to tick up to 3.8% in 2024 – from 3.2% in 2023 – contributing 2.9 percentage points (pp) to headline real GDP growth,” it added.
