Third Quarter [2020] Economic Data Review

The impact of the COVID-19 pandemic was felt on the local economy as quarter 2 Gross Domestic Product (GDP) figures showed that the Ghanaian economy contracted for the first time in four decades. The Ghanaian economy contracted at 3.2% as against an expansion of 5.7% over the same period last year. A strong expansion in the information and communications sector which grew at 74.2% failed to normalize huge contractions in the hotel and restaurant subsector which contracted by 79.4%. To help get the economy back on the right track, the government in its mid-year budget review announced a number of interventions, key among which are the reduction in the Communication Service Tax (CST) from 9% to 5% and the implementation of a GH¢ 100 billion development program dubbed ‘COVID Alleviation and Revitalisation of Enterprises Support (CARES)’. Notwithstanding, recent Bank of Ghana figures show that the economy is on a path of recovery following the gradual easing of lockdown restrictions as well as a pickup in business activities.

High inflation, shortfall in revenues coupled with increased government expenditures, COVID-19 uncertainties, and uncertainties going into the December polls have mounted pressure on the central bank to continue to put on hold its monetary policy easing cycle as the monetary policy committee adopts a wait-and-see approach. Any major policy decision is however likely to be implemented in 2021 after peaceful elections. The policy rate currently stands at 14.5%.

After consumer prices soared in the second quarter of the year, climbing to its highest in more than 2 years buoyed by price hikes in some foodstuffs, pressures on consumer prices have begun easing in the third quarter following a decline in the prices of some major foodstuffs, a relatively stable currency, and stable crude oil prices. The rate of inflation currently stands at 10.4% in September after declining from a 2020 year high of 11.4% in July. Although the inflation rate is set to beat the government’s revised end-year target of 11.1%, end-of-year activities are likely keep the rate of inflation above the BoG’s medium-term inflation target band of 8.0% ± 2.0%.

After a sharp fall in the Ghana Stock Exchange (GSE) Composite Index in the second quarter, some level of calmness was restored to the market as investors’ risk appetite began to pick up. The GSE Composite Index moderated in the third quarter as it depreciated by 2.3% (year-on-year) compared to a depreciation of 4.3% (y-o-y) and 12.0% (y-o-y) in the first and second quarters respectively. A gradual rise in demand for some blue-chip stocks will be expected to boost stock market returns in the remainder of the year. The GSE Composite Index closed the third quarter at 1837.27 points representing a year-to-date (YTD) depreciation of 18.60% as compared to 2149.70 points representing a YTD depreciation of 16.95% over the same period last year.

As the rate of inflation stabilized and began to ease off to pre-COVID levels, short-term Government of Ghana Treasury bills have failed to climb up to recover from its sharp fall experienced in April, 2020. The 91-day, 182-day, and 364-day bills ended the third quarter with a YTD depreciation of 4.32%, 6.75%, and 4.76% respectively against a YTD appreciation of 0.64%, 0.67%, and 8.09% over the same period last year. They ended the quarter at 14.04%, 14.015%, and 16.99% respectively. Medium to long-term papers have, however, began to show signs of traction as the government aimed to increase its borrowing to bridge a widened fiscal gap. The 2-year, 3-year, and 5-year Treasury papers moved from 18.75%, 18.85%, and 19.25% in the second quarter to 18.50%, 19.00%, and 19.85% respectively at the close of the third quarter.

Demand pressures on the Cedi eased marginally to give the Cedi some bit of stability. The Cedi ended the third quarter with a robust performance against the US Dollar. YTD performance of the Cedi at the close of the third quarter showed that the Cedi had depreciated modestly by 3.04% compared to a depreciation of 10.14%, 8.17%, and 4.44% over the same period in 2019, 2018, and 2017 respectively. Efforts embarked upon by the BoG to rebuild additional reserves will be expected to shore up the supply of forex into the spot and forward markets against a sharp rise in demand in the yuletide. Uncertainties ahead of the elections are anticipated to further mount pressure on the Cedi. On the Bank of Ghana inter-bank trading platform, the USD was exchanged for GHC 5.71 as at the close of the quarter representing a depreciation of 3.04% (YTD), compared with an YTD depreciation of 10.14% over the same period last year.