Business conditions deteriorate sharply in October

Key findings

  • Output and new orders fall at the quickest pace since April 2020
  • Solid and accelerated depletion in stocks of purchases
  • Near-record rate of output-charge inflation

October data revealed another substantial deterioration of business conditions in Ghana’s private sector – amid accelerated downturns for output, new orders, input inventories and employment. Panel comments alluded to severe implications from worsening cedi-dollar exchange rates, which reportedly weighed on client demand. Subsequently, sentiment fell to the lowest for over two-and-a-half years, with firms also indicating concern over the global macro economy.

Meanwhile, prices data signalled elevated rates of input-cost inflation, with purchase expenses particularly high. That said, the rate of overall input price inflation moderated, which contrasted with an accelerated rise in selling prices. In fact, output charges increased at a near-record rate; surpassed only by that seen in August.

The S&P Global Ghana Purchasing Managers’ Index™ posted below the neutral value of 50.0 for the ninth month in a row (44.0 in October from 45.6 in September), signalling another deterioration in business conditions. The latest result was the third-weakest in the survey’s history, exceeded only by that seen during the pandemic’s height in March and April 2020.

Central to the latest deterioration were accelerated falls in output and new orders. In fact, the rates of declines in both cases were the most pronounced since the pandemic’s initial phase (in March and April 2020), and the third-steepest in the survey’s history. According to panel comments, clients were deterred from placing orders in light of high prices. Firms scaled back their output levels in response to weaker demand.

Lower output requirements led firms to reduce their purchasing activity sharply, with the rate of decline quickest since April 2020. Pre-production inventory holdings were also cut, amid growing pressure on firms’ profits and weaker inflows of new work.

Ghanaian firms also reduced their headcounts during the month, with the rate of decline solid and the quickest since June 2020. Recent pressure on costs led firms to scale back on workforces, but they also blamed a lack of new orders.

Outstanding business at Ghanaian private sector firms fell, signaling ten consecutive months of decline. Moreover, the rate of backlog depletion was sharp and the quickest since March. Subdued demand conditions allowed firms to work through their incomplete work.

Vendor performance improved in October, signalling the fifteenth successive month of improvement. That said, lead times shortened at the weakest rate since start of the year.

Purchase costs continued to rise markedly, despite inflation softening to a three-month low. The rise was overwhelmingly linked to unfavourable cedi-dollar exchange rate movements. Despite moderating to a three-month low, the overall rate of input price inflation was substantial. In response, firms hiked their selling charges at the second-fastest rate in the survey’s history, with the latest increase outpaced only by that seen in August.

Ghanaian businesses foresee an expansion in output by October 2023, with firms hopeful that market conditions will stabilise and price pressures will ease. That said, the degree of optimism was weakest since start of the COVID-19 pandemic in March 2020.

Shreeya Patel, Economist at S&P Global Market Intelligence said: “The latest PMI data for Ghana signalled another marked deterioration in business conditions at start of the fourth quarter. Output and new orders fell sharply, with the rates of decline among the quickest in the survey’s history and surpassed only by those seen during the pandemic’s initial phase in March and April 2020. Consequently, firms grew less optimistic of their output expectations over the year-ahead, and cut their headcounts solidly.

“Recent performance largely reflected the unfavourable cedi-dollar exchange rate movements, which exerted upward pressure on costs and selling prices. The higher revisions to selling prices deterred customers from placing orders in October.

“The Ghanaian economy has struggled over the last year or so, and latest data suggests the troubling trading conditions are set to persist. Recent currency weakness has pushed the economy deeper into contraction territory, with businesses showing increased concern over the current environment. For now, firms hope that the currency recovers and price pressures subside.”

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