15 May 2013

Ghana's Economy Set for 5.5 Percent Growth This Year

With a gradually improving outlook for the global economy, growth in Ghana and sub-Saharan Africa is projected to grow 5½ percent in 2013-2014, compared with 5 percent in 2012.

The near-term outlook for Ghana and the sub-Saharan region is broadly positive, because most factors lending support to economic activity in the last few years remain in place - namely strong investment, favourable commodity prices, and generally prudent macroeconomic management, according to the IMF's Regional Economic Outlook for sub-Saharan Africa.

Investment is expected to remain a key driver of growth, while measured activity in 2013 will also be boosted by one-off factors in some countries, including rebound effects from floods in Nigeria, and recovery of agriculture in regions previously affected by drought, it stated.

Upper middle-income countries are expected to continue grappling with sluggish growth, while activity should gradually normalise in some fragile economies that were negatively affected by political instability.

The region's downtrend in inflation is set to extend into 2013-14. This forecast is premised on moderating non-oil commodity prices, productive local crops, and inflation-focused monetary policy.

Gains made in combating inflation in eastern Africa are expected to be consolidated, while the pace of price rises is projected to slow in countries that experienced inflation flare-ups.

Sub-Saharan Africa is now the second fastest-growing region in the world, trailing only emerging Asia.

However, growth patterns vary within the region. Strong economic activity in oil-exporting and low-income countries, more than compensates for a significant slowdown in middle-income countries - largely reflecting problems in the euro area, but also local factors in a number of cases - and adverse effects from civil unrest in some fragile states.

After reaching more than 10 percent in 2011, consumer price inflation in sub-Saharan Africa dropped to 7.9 percent at the end of 2012. The reduction in inflation, which was particularly marked in eastern Africa, generally reflected good local harvests, well focused monetary policies and, in some cases, the appreciation of local currencies.

That said, there were some exceptions to the downward trend in inflation in the region - most notably Malawi, which suffered pass-through effects from currency depreciation.

Growth prospects for the region are subject to downside risks, reflecting both external and domestic factors. On the external front, although near-term risks for the global outlook have diminished, sizable medium-term risks remain, including the possibility of prolonged near-stagnation in the euro area, and a sharp drop in investment in major emerging market economies.

The Regional Economic Outlook indicates that should these risks materialise, they could temporarily affect sub-Saharan Africa's growth, but not derail it.

That said, some countries with limited policy buffers or a high exposure to the shock - possibly reflecting a narrow export base - would likely experience more severe effects.

Domestic risks include adverse climate developments and internal conflict. These events, though potentially severe in their impact domestically, and perhaps on close neighbours, usually do not have significant effects on the region as a whole.

The region's positive outlook is conditional on the implementation of sound macroeconomic policies, although there is no one-size-fits-all approach.

- With the risk of a significant global slowdown still present, rebuilding buffers to handle adverse external shocks is essential in many fast-growing economies--while preserving key capital and social spending.

- Large fiscal deficits in some countries point to the need for fiscal adjustment; but the pace of adjustment should take into consideration the state of the economy.

- Continued tightness in monetary policy is warranted in countries with high inflation; in other countries, there could be space for some cautious easing of the policy stance.

- Surging current account deficits in some low-income and fragile countries, although largely financed by export-oriented foreign direct investment, require careful monitoring.

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