… economy to grow at 4.1% in 2021, 4.9% in 2022
By Toma Imirhe
Real household spending in Ghana is expected to grow or expand by 4.2 percent in 2021 and accelerate to 4.7 percent in 2022, Fitch Solutions has forecast
This follows an estimated contraction of 1.1 percent last year due to the negative impact of the Covid-19 pandemic. In 2021 Ghana achieved only marginal economic growth of 0.9 percent due to the effects of the global pandemic.
These forecasts suggest that household spending is lagging behind economic growth, although it is unclear whether this is because of an increase in the household savings rate or whether it is because economic growth is not trickling down to households fully.
“We forecast real household spending to grow by an annual average of 4.7% over the medium term (2021-2025). This is in line with our Country Risk team’s forecast for Ghana’s Real Gross Domestic Product which is projected to grow by 4.2% in 2021 and to accelerate to 4.9% in 2022. Over the 2021-2025 period, Ghana’s real GDP will grow by an annual average of 4.8%.”
Importantly Fitch’s forecast for Ghana’s economic growth for 2021 is significantly lower than government’s revised target of 5.1 percent. Fitch’s forecast is more in line with actual outcomes so far; 1st quarter growth was 3,1 percent and second quarter growth was 3.9 percent. Early data from the Bank of Ghana’s Composite Index of Economic Activity suggests that third quarter growth will not be higher than that for the second quarter (the CIEA fell marginally in the third quarter) and the recent tightening of monetary policy, in the form of a 100 basis points increase in the central bank’s Monetary Policy Rate in late November, could further curtail the economic growth rate in order to curb rising inflation and rising demand pressure for foreign exchange.
According to a report, the rising inflation is impacting on the real gains in disposable incomes.
“We note that while we forecast disposable income growth to be positive, inflation will be in line with income growth, meaning that consumers will have limited real income growth and this will result in consumers remaining price sensitive.”
Nevertheless, it said consumers will prioritise food and non-alcoholic drinks spending as they allocate their budgets, remaining the largest household spending category over the medium term.
Additionally, the report said, the gradual urbanisation of households in Ghana will bode well for the sector, offering a growing target market over the longer term.
The report further added that the positive growth in household spending will support food and non-alcoholic drinks spending, pushing consumers into the formal Mass Grocery Retail sector.
In Ghana, like in many Sub-Saharan Africa countries, food and non-alcoholic drinks makes up a significant proportion of household budgets.
“We project Ghanaian households to allocate 43.0 percent of total household budgets towards food and non-alcoholic drinks in 2021, decreasing slightly, to 42.7 percent in 2025”, Fitch Solutions noted.
In nominal terms, it projected food and non-alcoholic drinks spending of GH¢141.4 billion (US$23.8bn) and GH¢160 billion (US$25.7bn) in 2021 and 2022 respectively.
Real household spending in Ghana is expected to grow or expand by 4.2 percent in 2021 and accelerate to 4.7 percent in 2022, Fitch Solutions has forecast
This follows an estimated contraction of 1.1 percent last year due to the negative impact of the Covid-19 pandemic. In 2021 Ghana achieved only marginal economic growth of 0.9 percent due to the effects of the global pandemic.
These forecasts suggest that household spending is lagging behind economic growth, although it is unclear whether this is because of an increase in the household savings rate or whether it is because economic growth is not trickling down to households fully.
“We forecast real household spending to grow by an annual average of 4.7% over the medium term (2021-2025). This is in line with our Country Risk team’s forecast for Ghana’s Real Gross Domestic Product which is projected to grow by 4.2% in 2021 and to accelerate to 4.9% in 2022. Over the 2021-2025 period, Ghana’s real GDP will grow by an annual average of 4.8%.”
Importantly Fitch’s forecast for Ghana’s economic growth for 2021 is significantly lower than government’s revised target of 5.1 percent. Fitch’s forecast is more in line with actual outcomes so far; 1st quarter growth was 3,1 percent and second quarter growth was 3.9 percent. Early data from the Bank of Ghana’s Composite Index of Economic Activity suggests that third quarter growth will not be higher than that for the second quarter (the CIEA fell marginally in the third quarter) and the recent tightening of monetary policy, in the form of a 100 basis points increase in the central bank’s Monetary Policy Rate in late November, could further curtail the economic growth rate in order to curb rising inflation and rising demand pressure for foreign exchange.
According to a report, the rising inflation is impacting on the real gains in disposable incomes.
“We note that while we forecast disposable income growth to be positive, inflation will be in line with income growth, meaning that consumers will have limited real income growth and this will result in consumers remaining price sensitive.”
Nevertheless, it said consumers will prioritise food and non-alcoholic drinks spending as they allocate their budgets, remaining the largest household spending category over the medium term.
Additionally, the report said, the gradual urbanisation of households in Ghana will bode well for the sector, offering a growing target market over the longer term.
The report further added that the positive growth in household spending will support food and non-alcoholic drinks spending, pushing consumers into the formal Mass Grocery Retail sector.
In Ghana, like in many Sub-Saharan Africa countries, food and non-alcoholic drinks makes up a significant proportion of household budgets.
“We project Ghanaian households to allocate 43.0 percent of total household budgets towards food and non-alcoholic drinks in 2021, decreasing slightly, to 42.7 percent in 2025”, Fitch Solutions noted.
In nominal terms, it projected food and non-alcoholic drinks spending of GH¢141.4 billion (US$23.8bn) and GH¢160 billion (US$25.7bn) in 2021 and 2022 respectively.
