Third quarter blues
Today marks the last Friday of September, which also means that it signals the end of the third quarter as far as the publication of this column is concerned.
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Therefore, as l normally do at the end of each quarter; we are going to take a cursory look at the economic performance of the quarter, critically evaluating the possible signals for the next quarter- and perhaps beyond.
First off, the plain fact is that the performance of the economy during the quarter under review was mixed. Key economic indicators, such as interest rate, inflation, employment and as it is very peculiar to our economy, the International Monetary Fund (IMF) programme, all recorded some mixed swing, except that the direction of the interest rate did not work well for many.
Whereas the concentration of many market observers and commentators was focused on the swinging value of the currency in market trading against the other major currencies of the world, the main driver of economic policy was inflation.
With an inflation targeting policy by the Central Bank, even though the mood among many was an expected reduction in the policy rate, the central bank rather increased the rate by a 100 basis point, to 25 per cent. Some say it is the highest in 10 years.
Expectedly, the reaction from industry has been swift and cold: “When that happens, cost of borrowing becomes very high and at the moment [the] cost of doing business is unacceptable so if we keep on making it more expensive for businesses and industries to operate, we risk pricing out ourselves from our export market’’, President of the Association of Ghana Industries (AGI), James Asare Adjei reportedly said.
Earlier in the quarter under review, the central bank took a decisive view on its monetary policy stand, streamlining the reverse repo rate and the policy rate. With this approach, the bank’s view was to sanitise the lending structure, making it much easier for efficiency and direction.
Even though some economists and market watchers are generally happy that, at least, there are moves by the central bank to have a strong foothold in the market to manage affairs, not all are happy.
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Again, industry has a negative view of this. “AGI and for that matter the private sector believes that by merging the repo rate and the monetary policy rate to bring it to an average of 24 per cent in itself was not in the right direction for private sector growth’’, Mr Adjei said.
The economic managers, especially the Bank of Ghana, believe strongly that with a threat of excess liquidity in the last quarter of the year, the risk to inflation was therefore high and as such, a rate increase was the only feasible option to strike a convenient balance that would improve the overall health of the economy.
On the issue of employment, the unemployment situation did not improve in the quarter under review, at least as reported by the various media outlets, which has become the reference point because of the poor data collection on the situation.
Even though the government is of the view that some policy interventions are most likely to influence the employment situation, the figures cannot be easily estimated. But by and large, the unemployment situation has reached an alarming proportion, calling for a serious rethink about the educational system, especially at the tertiary level.
Meanwhile, just a few weeks back, the Institute of Statistical, Social and Economic Research (ISSER) in its 2014 State of the Economy report stressed that the economy was in a bad shape, and not only that, but that its future prospects looked bleak also.
However, the Finance Minister, Mr. Seth Terkper, looks on the situation with optimism, stressing that policy interventions are yielding positive results.
“First of all the services sector continues to perform well. Secondly our [government] consolidation efforts and the solution to the problems from subsidies to power situation keep improving. Beyond the short term measures, we also have a services sector that continues to grow. .. ”, Mr. Terkper reportedly said.
Now let us look at the overall growth of the economy and the outlook for the next quarter.
The intervention by the IMF has brought about some policy credibility which has caused analysts and rating agencies to proffer better performance in the medium term, in line with government expectations.
Fitch ratings agency believes that the IMF programme in place, which will continue through 2016, would certainly lead to fiscal consolidation.
Basing its expectations on possible stable commodity prices in 2016, the ratings agency holds a strong and positive view about the medium-term growth prospects of the economy.
The agency assumes in its latest report that Ghana's GDP growth will recover to six per cent by 2017.
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In the final analysis, the agency affirmed Ghana's long-term foreign and local currency Issuer Default Ratings (IDR) at 'B' with Negative Outlooks and subsequently affirmed the country’s short-term foreign currency IDR at 'B' and Country Ceiling at 'B'.
Also, the issue ratings on Ghana's senior unsecured foreign and local currency bonds have been affirmed at 'B'.
The factors that influenced the current outlook are as follows: high fiscal and external risks, complicated by a slowing economy and low commodity prices.
All in all, the performance of the economy, even though it has not shown serious rebound in the third quarter, it has still shown promise that it is responding well to the policy injection aimed at reversing the slide experienced in recent years.
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The finance minister says to fully deal with the challenges facing the economy, there was the need to “institute deep structural measures” and to this l would add that the household economic management approach must also look at “structural changes” to adjust to the changing economic pattern.
If you are on a flexible interest rate on any loan or credit advance, this is the time for you to start looking for the extra cash if you haven’t done that already to top up your repayments. This could mean rethinking the household budget….tough isn’t it?