Business News of Wednesday, 27 February 2013


Economy sustains stability

The country’s economy continued to show some stability with recently released data pointing to impressive outturns by economic indicators.

Provisional estimates released by the Ghana Statistical Service (GSS) put real GDP growth at 7.1 per cent in 2012. Year on year inflation for the month of January according to the GSS was unchanged from the 8.8 percent recorded in December 2012.

The Cedi also showed some resilience against the major currencies appreciating against the Pound and the Rand.

The muted inflationary environment and stable currency also helped in boosting the mood of businesses and consumers with the Bank of Ghana’s business and consumer confidence indices improving in December 2012 and January 2013.

On government fiscal operations for 2012, data from the Ministry of Finance show that revenue and grants came up to GH¢16.1bn, representing 22.3 per cent of GDP. Tax revenue which amounted to GH¢11.6bn, was 3.7 per cent below the budgeted GH¢12.1bn due to lower corporate taxes, especially from oil firms.

Total expenditure for the year at GH¢24.8bn represents 34.5 per cent of GDP. This was 14.7 per cent above the budget target. The high expenditure growth was as a result of increased recurrent spending of GH¢16.5bn, driven by higher payments in respect of personal emoluments, utility and fuel subsidies and interest costs.

The domestic economy is expected to consolidate gains in the months ahead as the recent fuel price increases is not projected to lead to any significant destabilizing effects. Nonetheless, there are some obstacles ahead.

After surviving a challenge in the first half of 2012 which saw the Cedi lose grounds and inflation head upwards, some confidence has been restored on the back of measures put in place by the BoG. In view of the foregoing, it was expected that the MPC may revise downwards its policy rate at the close of its meeting in February. But however this did not happened.

With the upward revision of fuel prices, analysts anticipate money market rates staying within current levels for the most part of the first half of 2013. Analysts however see rates trending downwards during the latter part of the year if inflationary pressures remain contained.

Most of the excess liquidity in the economy as a result of the implementation of the new single spine salary structure and election spending has been mopped up with the rates policy last year.

Going forward, one also anticipate the BoG sustaining its strategy of bringing down rates. This is because, the 2013 budget is projected to see increased government spending though we do not foresee tax rates being increased. We believe the government would want to see its borrowing costs coming down in this regard.

The major challenge ahead is the likely upward adjustment of fuel prices before the end of the first half of 2013. Though the government is seeking ways to cut down on petroleum subsidies we do not anticipate a significant rise which might destabilise the local economy.

On the forex front, the local currency may continue to sustain its resilience as the BoG persists with its policy measures. With the disciplined management of the economy in the election year boosting investor confidence we do not foresee the large scale redemptions and repatriations observed a year ago.

On the other hand the expected expenditure on roads, utilities, energy and education by government is expected to be supported by private investments.

On the global economy a number of positive signals have given some hope to the investing public.

In the U.S., the economy continued to strengthen as weekly data released by the Labour Department showed falling jobless claims. The improving outlook for the U.S. and global economy in recent weeks has boosted oil markets with West Texas Institute (WTI) crude prices rising from near $85 a barrel to an average of $95 at the end of the month.

Additionally, surveys which showed that Chinese factory activity in January grew at its fastest pace in two years; lifted sentiments and also gave steam to commodity prices. The Eurozone economy which hit a low point in last quarter of 2012 shaved off some of its gloom with the European Commission's economic sentiment index rising to 89.2 points in January. This is its third consecutive monthly climb.

Still in the eurozone, the Commission’s data also showed sentiments improving most among consumers and in the construction sector. In addition, the services sector, which generates two-thirds of the single currency area's GDP also garnered rave reviews from stakeholders.

In spite of the raised economic prospects and projected demand by businesses and consumers, global commodity prices were volatile during the month. Gold struggled during the month with investors prepared to shed its safe haven for risky assets on the back of the better economic prospects and policy interventions in Japan.

The precious metal, which closed December at US$1,676/oz slipped to a low of 1,623 in mid-January but managed to close the month at US$1,674.

Cocoa rose to a three-week high of US$2,300 in mid-January on expectations that the improving U.S. economy will boost demand and also amid falling supplies from Ghana. It however slipped to US$2,204 by the month’s end. Merban Stockbroker Ltds/GB