Macroeconomic Performance Report [Fourth Quarter 2021]

Ghana’s recovery path continued unabated as the economy continue to record positive growth after it suffered a major set-back in the heat of the COVID-19 pandemic. After an impressive jump in Q2 Gross Domestic Product (GDP) figures, the latest GDP figures released by the Ghana Statistical Service in December put Ghana’s growth rate at 6.6% in Q3. The strong growth was led by Education (+24.2%), Health & social works (+20.5%), Information & communication (17.0%), and among others which overshadowed a slowdown in Mining & quarrying which contracted by 11.2%. Ghana’s GDP figures have thus soared to pre-COVID levels despite the persistence of some underlying challenges. Based on the growth trajectory over the past four quarters, we expect the government to meet its revised growth forecasts for 2021 which was pegged at 5.1%.

Fears of revenue underperformance as some businesses struggle to steer out of the ravages of the pandemic were unsustained as the Ghana Revenue Authority met its target for the fiscal year. Data released by the Authority showed that the revenue mobilization agency collected a little over GHS 57.3 billion as against a program target of GHS 57.1 billion. Despite this positive development, government expenditures continue to surge on the back of the rollout of massive intervention measures to cushion businesses and individuals gravely affected by the pandemic. Total government expenditure for the period up to September amounted to GHS 80.7 billion against a revised target of GHS 83.9 billion. This notwithstanding, we expect the government to meet its revised fiscal deficit of 7.4% for 2021. We also expect a restoration to the fiscal responsibility act to occur beyond 2022 given the recent trajectory.

Persistent upward price pressures drove the inflation rate at the end of Q4 to its highest in more than four years as the local economy continues to heat up following a return to normalcy in most economic activities. After touching a multi-year low in Q2 at 7.5%, consumer prices have been on a steady rise throughout the second half of the year. A stronger pick-up in economic activities as the year wrapped up, lifted the inflation rate to close at 12.6%. This thus beats the government’s year-end inflation target of 10% as a sharp rise in crude oil prices on the international market, the depreciation of the local unit, and fiscal slippages contributed significantly to the reversal of a deflationary trend as witnessed in Q1 and Q2. Pressures on consumer goods are expected to persist beyond 2021 on the back of a continuous rise in the prices of petroleum products and foodstuff, and the introduction of new tax regimes.

The local bourse closed Q4 as the second best-performing stock exchange in Africa as strong investor sentiments drove growth across multiple sectors. Gains on the bourse suffered a setback in the later part of the year buoyed by profit taking in mid and large caps. The GSE-Composite Index (CI) ended the year recovering from losses suffered in 2020 and 2019 after COVID induced fears led investors to flee from riskier economies. The GSE-CI closed the year with 2789.34 points representing a YTD gain of +43.7% as compared to –13.98% in 2020. We expect the bullish run to cool off in 2022 on the back of some offshore investors existing the domestic market as rates are expected to pick up in the US and Europe.

The 2021 Treasury yield curve ended the year better-shaped than the last two years as rates on the lower-end of the curve remained sticky-up whilst that on the medium to long-terms made significant gains. Inflationary pressures in the second half of the year did little to lift up short-term Treasury securities in Q4 as the rates on the 91, 182, and 364 tenors remained trapped in 2018 year lows. This was mainly supported by continuous strong expression of interest by investors, particularly institutional investors in search of liquidity. The medium to long-term papers experienced major gains as the government sought to entice investors to lock-in their funds for a much longer period. Yields on the 91, 182, and 364 tenors closed the year at 12.51%, 13.19%, and 16.57% respectively. This compares with 2020 year-end figures of 14.09%, 14.12%, and 16.99% respectively. The 2-year, 3-year, and 5-year papers cleared at 19.75%, 19.00%, and 21.00% in Q4 after beginning the year at 18.50%, 17.70%, and 18.30% respectively.

The Cedi in Q4 came under intense pressure buoyed by strong demand for forex by importers and corporate institutions as the year wrapped up. The gradual reopening of most economies as vaccination was rolled out on a large scale began to mount pressure on the local unit as demand for forex rose sharply. The Cedi also suffered from a rise in global inflation picking up steadily as most central banks began to pull back monetary stimulus, raising expectations of rate hikes in the advanced countries. Increased intervention by the central bank and improved forex reserve position helped to cap the Cedi’s losses. The local unit closed Q4 adding 2.43% to its year-to—date depreciation against the Dollar in Q3. It was exchanged for GHS 6.01, GHS 8.13, and GHS 6.83 at the end of Q4, 2021 which compares to GHS 5.76, GHS 7.88, and GHS 7.07 over the same period last year against the Dollar, the Pound, and the Euro respectively.