Soaring inflation set to derail Ghana’s 2022 growth target | Business

Ghana’s economic expansion this year is likely to be lower than government forecasts as soaring inflation reduces private consumption and investment.

West Africa’s second-largest economy will grow 5% in 2022, according to the median estimate of five economists polled by Bloomberg. That compares with the government’s projection of 5.8%, made in November, although it said last week it would revise that figure.

“I expect to see a marked slowdown in economic activity in the first half, mainly due to higher fuel and food prices which weaken private consumption, with investment also likely to be weaker” said Mark Bohlund, senior credit research analyst at REDD Intelligence. by telephone.

The inflation rate of Africa’s largest gold producer hit a 12-year high of 19.4% last month, due to disruption in the global food supply chain, rising prices oil, currency depreciation and Russia’s invasion of Ukraine.

Ghana’s economy grew by 5.4% last year, a strong comeback from a 37-year low of 0.5% in 2020 when the Covid-19 pandemic hit. But this year, growth is likely to be hampered by Finance Minister Ken Ofori-Atta’s proposed 30% cut in public spending.

Ofori-Atta deepened budget cuts last month to stem a sale of Ghanaian dollar bonds to assure wary investors that he will meet his budget targets, get his debt under control and regain the market access he lost this year. Portfolio investors also dumped cedi bonds, contributing to the currency’s 17.8% loss against the dollar this year and fueling inflation.

The central bank has reacted by raising its benchmark interest rate by 350 basis points since November to 17% in order to contain inflation, which it targets in a range of 6% to 10%. The Bank of Ghana could raise rates by up to 200 basis points to curb inflation, said Courage Boti, an economist at Accra-based Databank Group.

“It will make the cost of credit more expensive for the private sector, thereby stifling growth,” he said. “Revenues could fall significantly by the middle of the year and the government may have to cut spending again.”

Databank raised its end-of-year inflation forecast to between 12.9% and 14.9%, from 8.9% to 10.9%, on lingering risks to war-related supply chains in Ukraine. “We perceive continued upside risk to inflation in Ghana due to rising food, petroleum and construction material prices,” he said in a note to clients this week.

Ghana’s real private sector credit growth, an indicator of private investment, posted positive growth for a second consecutive month in February at 1.2 percent, after contracting for the past five months. But that will likely decline again as lending rates rise, said Victor Asante, managing director of FBN Bank Ghana Ltd.

“There are already signs of distress in industries that rely on a lot of imports,” Asante said. “Some have already requested a restructuring of their existing facilities.”

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