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Economy faces first recession since 1983

BY: Maxwell Akalaare Adombila
The brisk business in Accra (pictured left) has given way to empty streets, raising fears that the impact will be a contraction in GDP growth
The brisk business in Accra (pictured left) has given way to empty streets, raising fears that the impact will be a contraction in GDP growth

The economy risks suffering negative growth rates in the upcoming quarters as the novel Coronavirus (COVID-19) continues to rob the country of the usual social briskness that keeps factories humming, trading active and foreign exchange flowing for growth to remain in the positive territory.

After forcing a partial lockdown of the major economic cities and a freeze in business operations nationwide, economists have concurred that not much economic activities will take place in the coming months to help keep gross domestic product (GDP) in growth mode.

The situation, they said, risked worsening in the coming days and weeks as the continuous spread of the virus into other regions mean that a nationwide lockdown would now have to be on the cards of the government.

As of April 12, 566 cases had been confirmed in 10 out of the 16 regions.

Recession imminent

Given that GDP growth is a factor of social interaction and economic activities, Prof. Peter Quartey, Prof. John Gatsi and Dr Said Boakye said in separate interviews that a nationwide lockdown would ground economic activities, result in business failures, shed jobs and ultimately push the economy into recession – the posting of negative growth rates in two consecutive quarters.

Although the economists differed in when the negative growth was most likely to be recorded, they said the second and the third quarters could be the worst hit as a protracted nationwide lockdown in an attempt to contain the spread was imminent within those periods.

 “When there is a lockdown and you are not producing, the economy cannot grow and it can be severe if the situation protracts beyond April,” Dr Boakye, who is an economist and a researcher, said.

“When the spread goes beyond April, then a recession is imminent and it can be deeper if the situation persists,” Prof. Gatsi, who is the Dean of the Business School of the University of Cape Coast, said on April 13.

The Ministry of Finance estimates that a protracted nationwide lockdown between now and June to contain the viral spread would result in GDP growth falling from a projected rate of 6.8 per cent to 1.5 per cent in 2020.

That estimate is gloomier than the one from the Bank of Ghana, which said GDP growth could slow to 2.5 per cent for 2020 in the worst-case scenario.

Recent recession

Economic recessions normally result in mass job losses, business failures, reduction in incomes and a general fall in the standard of living.

Ghana’s economy recorded its most recent recession in history in 1983. In that year, a famine that had far-reaching implications on livelihoods and businesses combined with weak economic policies to result in negative growth rates.

Before then, the economy had receded in 1978, 1979 and 1982, according to data from the International Monetary Fund and the World Bank.

Global recession

A recession in Ghana will not be new to the world, although it will be the first time in 37 years that Ghanaians will be witnessing negative growth with its attendant consequences on jobs, incomes and livelihoods.

On March 23, the IMF warned that the COVID-19 risked plunging the global economy into a recession in 2020 in a way that would be more devastating than seen under the 2008 financial crisis.

The World has also expressed similar sentiments, including stating that the virus was in the process of making sub-Saharan Africa register its first recession in 25 years.

Ripple effects

While these sound distant from Ghana, Prof. Quartey, who is a Professor of Economics, said the interconnected nature of the world meant that whatever happened in the globe had dire implications on Ghanaians.

He mentioned foreign exchange earnings from cocoa, oil remittances and international trade taxes as some of the revenue streams that would be hit hard by a slump in global GDP.

Back home, Prof. Quarety, who is the Head of the Institute for Statistical, Social and Economic Research (ISSER) of the University of Ghana, Legon, said the restriction in movements meant that businesses could not produce, resulting in loss of economic activity.

Mitigation measures

Dr Boakye said while economists could continue to do their permutations, the thrust of the issue was way beyond them.

“It is purely a health issue and when you want to predict, you need to be sure of what the scientists are saying,” he said.

He, however, warned against attempts to reboot growth at a time when the virus was raging.

“The government has to manage and contain the spread and so all policies must be centered on that,” he said.

While doing that he said the government must also concern itself with measures to contain the social impact by supporting people to cope.

The government has since absorbed all water bills for consumers in the next three months.

All electricity tariffs have also been absorbed for lifeline consumers while those above have been subsidised by 50 per cent.

Hot meals are also being provided to some vulnerable people, among other social interventions.