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Saturday, July 25, 2009

Ghana's Economy Is Slowing Down

paulLatest report released by the Monetary Policy Committee (MPC)of the Bank of Ghana, indicates that economic activity for the second quarter of this year slowed down, coupled with the Gross Domestic Product (GDP) showing significantly below the trend. The report which was to review the health of the economy showed that real GDP growth was moving close to 6 percent from the peak of 7.3 percent recorded in 2008.

Increase in fuel prices and the rise in cement prices, which are key indicators in the economy, are responsible for the dip in the Central Bank’s Composite Index of Economic Activity at the end of May 2009. Since the beginning of the year, cement prices has shot up four times, with the current price at GH¢10.34 per bag. Tourist arrivals and domestic VAT, which is an indication of consumption levels and to some extent industrial consumption of electricity, have all recorded a marginal decline during the period.

All these developments and other factors are mainly responsible for the plunge in economic activities. Addressing Financial Journalists at the quarterly MPC press briefing, Dr. Paul Acquah, Governor of the Bank of Ghana, said the Central Bank’s index grew below the trend’s growth rate of 22.7 percent, compared with 33.7 and 23.5 percent recorded for the same period in 2008 and 2007 respectively. Similarly, consumer sentiments remained increasingly soft, with the latest Central Bank surveys indicating that business confidence was at a low point, with half of the respondents having revised downwards their expectations of economic prospects.

He however noted that the uncertainties associated with the possible fallout of the global financial crisis, and volatility in the domestic economic environment seems to be dissipating. Nevertheless, some of the country’s economic indicators performed creditably as at the end of June 2009. Government’s budget for the first half of the year showed some signs of fiscal consolidation, coupled with robust revenue growth and reduced budgetary outlays. Likewise, the country’s trade deficit narrowed in part due to a slowdown in imports, a sharp decline in the oil import bill, which recorded $449.61 million, as compared with $1.326 billion in 2008, and was mainly due to the drastic reduction in Oil prices from $147 in 2008 to $68 in 2009.

However, uncertainty remained about remittances and capital flows. The potential increases in oil prices remain a source of major risk in the payments outlook. Exports of cocoa and its related products for the first half of the year amounted to $1.060 billion, an annual growth of 16.6 percent compared with $909.96 million in 2008. Also Gold exports increased by 1.2 percent, from $1.199 billion in 2008 to 1.213 billion this year, but diamond exports declined significantly from $29.50 million in 2008 to $3.09 million in 2009.

Non-traditional exports also continued to grow despite the global financial crisis. It recorded $610 million for the first half of the year as compared to $587.47 million last year. The country’s Gross International Reserves at the end of June 2009 was $1.705 billion, which represents 1.49 months of imports cover.

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