Output falls for first time in 12 months

• New orders down amid demand weakness
• Employment ticks lower
• Softer rise in output prices

The opening month of 2024 saw a renewed contraction in Ghana’s private sector as demand faltered. Output, new orders, employment and purchasing all decreased during

January, while business confidence dropped sharply. Rates of inflation remained relatively muted, with both input costs and output prices rising at softer rates than at the end of 2023.

The S&P Global Ghana Purchasing Managers’ Index (PMI) dropped below the 50.0 no-change mark for the first time in a year during January. At 48.4, the latest reading was down from 51.8 in December and signalled a modest deterioration in business conditions in Ghana’s private sector.

New orders decreased in January after having risen solidly in December. In fact, the fall in new business was the first in 12 months and linked by panellists to a slowdown in demand in the  economy.

Softer market conditions also acted to depress business activity at the start of 2024, with a lack of rainfall contributing to a first reduction in output for a year. As was the case with new business, however, the reduction in activity was only modest.

Declining new business meant that a number of firms laid off temporary workers at the start of the year, resulting in a first reduction in overall employment since November 2022.

That said, the rate of job cuts was only fractional as some companies increased staffing levels through the filling of vacancies.

Companies were again able to deplete backlogs of work given the moderation of new business, with some respondents to the survey indicating that all outstanding business had been completed during the month. The latest fall in backlogs was only slight, however.

Purchasing activity decreased, following a marked expansion in the previous survey period. Some panellists reported that the reduction in new work meant that their level of

purchasing in previous months left them with sufficient holdings of inputs to support output requirements. Stocks of purchases also decreased, ending a ten-month sequence of accumulation.

Reduced demand for inputs made it easier for suppliers to speed up their deliveries in January. Vendor lead times have now shortened on a monthly basis throughout the past two and- a-half years.

The rate of purchase cost inflation eased to a four-month low and was well below the series average. Where purchase prices increased, this was mainly due to a depreciation of the cedi against the US dollar.

While purchase price inflation eased, the pace at which staff costs rose accelerated at the start of the year as firms increased pay to help their staff cope with higher living costs.

That said, the pace of inflation remained modest. Matching the trend in overall input costs, output prices continued to rise in January, but at a slower pace. The rate of inflation softened to a five-month low and was weaker than the series average.

As well as seeing output and new orders decrease in January ,firms were also much less optimistic about the year-ahead outlook for business activity. Sentiment dropped to a

14-month low and was weaker than the series average. That said, companies remained confident overall that output will increase over the next 12 months, with around 65% of respondents expressing optimism.

Andrew Harker, Economics Director at S&P Global Market Intelligence, said: “Ghana’s private sector took a while to get going at the start of 2024 as muted demand led to setbacks in new orders and output. In turn, employment was also scaled back as firms let go of some of their temporary workers. Also disappointing was a marked drop off in confidence about the year ahead.

“On a brighter note, inflationary pressures generally eased and were relatively muted, hopefully providing the basis for a recovery in demand in the months ahead

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