January fails to feed February

BY: Bernard Otabil
Library photo

Last week l had a request from an ardent reader of this column that l should help him to “track” his progress in 2015. What a task!

In fact, the request went like this: “Dear Bernard, thank you for your engaging and thought provoking articles that seek to promote financial inclusion in the country. I have come to like your weekly articles and I try many times-where it is offered- to follow the advice you give.

“ The trouble rather is that l don’t get people around me encouraging me that much to continue in earnest so l would like you to help me to track my progress in 2015 so that l don’t lose focus. 

“Also, l would like you to give a quick review of the economic indicators every month so that we can always factor that in, when planning our activities”.

Well, remotely tracking progress of someone can be extremely difficult- an arduous task- so what l have decided to do is to develop the second part of his request into a regular monthly review of economic trends and development, to satisfy him somehow. 

What this means is that, at the end of every month, starting this week, we will look at what made the news as far as economic and financial issues are concerned and try also to look into the future.

So let us get off this week looking at what really drove the economic news in January, the first month of 2015, and try and look ahead into February as well.

As was expected by most analysts, January did not offer much in terms of hard driving economic news for the media, however it did give an indication of what the “coming events” are most likely to be. 

This is quite typical of January months as the festive period and long break from work often experienced in the latter part of December that rolls into the first week of January always slows down economic activities globally. 

The lull however offers a period of reflection and planning for analysts and market participants.

At the local front, the economic managers concentrated on the fiscal consolidation that was started some months back, with most of the talk in the media hovering around a possible IMF bailout and its impact on the economy generally.

The Cedi held its own quite well on the average in currency market trading except that market watchers are still sceptical that the coming months could witness a much wider gap between demand and supply of foreign currency, with a negative effect on the economy.

In a discussion with a foreign exchange trader in one of the leading banks in the country, his assessment was as follows: “Clearly, if you look at demand for foreign exchange, both in real cash markets and anticipated demand over the next three months, it is most likely that there wouldn’t be enough cushioning from the Central Bank. 

“Already, we (banks) are in the market sourcing for foreign exchange to meet our clients’ needs. If demand is not met by adequate supply, then unfortunately we will see a much further erosion of the value of the Cedi”.

Well, the effect of a depreciating currency cannot be over-emphasised. Significantly, this will affect the general pricing of goods and services in the country, and cause real incomes to reduce. This currency “demand pull” factors could force interest rates and inflation to go up as well.

Of course these are all “what-if” scenario building and l am pretty sure that the economic managers will put the right policies in place to address the situation in order to maintain macro -economic stability. I hope!

Already, the Central Bank has issued prospectus for another round of bond issue, which should cushion the economy and provide some needed funds to the economic managers.

Headline inflation in January was well within anticipated limits set by the economic managers, and it is expected to be within range, even though the general impression among many is that it will go up if some of the possible setbacks enumerated above are not addressed.

In January also, the load shedding that had shown some good signs of abating in the last quarter of last year, increased with a disturbing effect on industry. 

This means that most companies are now experiencing increased cost of production because of the increased cost of energy as they are forced to use alternative sources of energy, which are often more expensive.

There were no figures released on the state of unemployment in the country, which means it cannot be commented on with credibility, except to say that there were no significant job creation opportunities of note in January either to anticipate which direction unemployment went or is going. 

All in all, the economic performance in January was mixed and actually was not different from the trend in the last quarter of 2014. Therefore, much cannot be said of February either as there are no clear indicators from the performance in January.


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