COVID-19 pushes Ghana into deepest economic contraction in 40 years

GHANA – The raging COVID-19 health and economic crisis has pushed Ghana into what economists describe as the deepest short-term economic contraction in 40 years.

Data released by the Bank of Ghana indicates that the socio-economic restrictions imposed by government made the economy to contract by 10.6 percent during the second quarter of the year.

Bank of Ghana noted that the government imposed three weeks lock down on Ghana’s largest cities of Accra and Kumasi contributed to the country’s worst economic contraction in 4 decades.

The BoG’s Composite Index of Economic Activity (CIEA), measured on a year on year basis, contracted sharply during the period under review.

This according to the Bank of Ghana was a complete reversal of the 5.6 percent growth in the index recorded over the previous 12-month period.

 A report by Ghana Web opined that the sheer depth of the contraction in the CIEA for May, suggests that actual GDP growth will also be deeply negative.

The report further noted that a recovery into positive territory as soon as the following month of June is highly unlikely.

According to BoG Governor Dr Ernest Addison, “high frequency data shows that the contraction was broad-based and reflects the impact of the COVID-19 pandemic on the domestic economy.”

According to Dr. Addison, industrial consumption of electricity fell as manufacturing companies worked below capacity.

Tourist arrivals, on the other hand, remained at a standstill due to the border closure and travel restrictions.

The governor further noted that the country’s imports, domestic VAT and exports have all been impacted negatively.

Addison however noted that, “port activity, deposit money in banks, credit to the private sector and SSNIT contributions are beginning to record some modest gains – a sign of some early green shoots.”

The economic activity contraction is likely to result in Ghana recording a negative GDP growth for the second quarter of this year.

This would be the first time Ghana has reported negative quarterly growth since it started liberalizing its economy through an International Monetary Fund and World Bank supervised Economic Recovery Programme in the mid-1980s.

Despite this short-term phenomenon there is still a possibility that Ghana can achieve marginal economic growth this year.

Ghana’s Finance Minister Ken Ofori-Atta forecasted that growth will fall to just 0.9 percent this year, in his recent mid-year budget review presentation to Parliament.

The severity of the contraction in economic activity in April and May, may be a compelling reason why government is easing its erstwhile social and economic restrictions at a pace that many medical experts regards as too hurried, despite its being done in phases.

It is however, hoped that the phased resumption of full economic and social activities, supported by government’s ongoing economic stimulus programmes will propel economic growth over the second half of the year.

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