Databank Research is maintaining its end-year 2021 forecast of overall real Gross Domestic Product (GDP) growth rate within 3.9% and 4.9%.

According to its latest analysis of the economy, the increased utilization of spare production capacity will sustain the recovery in the manufacturing and trade sub-sectors.

Databank Research said the high-frequency data shows ongoing recovery in economic activity, but the pace of recovery in aggregate or collective demand is sluggish as the post-lockdown wage growth remains restrained.

“We expect the increased utilisation of spare production capacity to sustain the recovery in the manufacturing and trade sub-sectors. We, however, view the rising cost of production occasioned by the tax hikes, transport fare hikes, and higher fuel cost as a downside risk to the expansion in manufacturing and trade.”

“But the food harvest season in the third quarter 2021 and the main cocoa season in the fourth quarter 2021 should propel agriculture growth in the second half of the year, albeit with some risk from the unfavourable rainfall pattern across the southern sector”, it explained

The economy expanded by 3.1% in the first quarter of this year, spurred by Construction (14.2), Manufacturing (6.1%), ICT (22.1%), Livestock (5.5%), Crops and Cocoa (4.9%), Financial and Insurance Services (4.8%)and Transport (3.0%).

“With the trade sub-sector also posting a modest growth of 2.7%, we believe Ghana's growth pulse is gradually strengthening, albeit with downside risks. The sharp contraction recorded in second quarter 2020 provides a favourable base effect for a stronger growth print for second quarter 2021”, Databank Research pointed out.

On the downside, the report said contractions in the extractive and hospitality sectors constrained growth for the period, adding, within the extractive sector, mining & quarry (excl. oil & gas) contracted by 5.3% while the oil & gas sector shrunk by 16.2% in first quarter 2021 (vs. -3.6% in first quarter 2020).

This contraction is the 5th consecutive quarter of negative growth within the extractive sector, reflecting the lingering impact of Covid-19 on physical demand and the supply of fuel and metals. The hospitality industry showed signs of recovery as the rate of contraction moderated from -73.0% in second quarter 2020 to -10.7% in first quarter 2021.

Government begins rollout of GhanaCares Obaatanpa programme

Meanwhile, government will begin a gradual rollout of the ¢100 billion Ghana CARES programme from today over the medium term.

“We view the CARES programme as a catalyst for growth in the short to medium term. However, potential challenges with financing the programme amidst bottlenecks in the vaccination rollout are headwinds to the effectiveness of the interventions”, the report said.

Additionally, “aggregate wage growth remains muted so far in 2021, and the tax hikes could exert further downward pressure on demand and general economic activity.”