Surge in Pressures Fueling Inflation Leading to Increased Struggles
Ghana's private sector experiences a gradual improvement in business conditions during the second quarter of 2022, according to a recent report from S&P Global. The Purchasing Managers' Index (PMI) for April rose slightly to 48.3, remaining below the neutral 50.0 mark but showing a less severe decline compared to March.
The report pointed to a softening reduction in both output and new orders, while job growth continued. Delivery times improved at a near-record pace, aiding the resurgence in buying activity. However, the primary concern for the private sector remains the escalating inflationary pressures, with overall input price inflation reaching a seven-and-a-half year high.
Demand for Ghanaian goods and services suffered once more, with persistent price hikes deterring customers. Despite this, new orders fell at a softer pace in April, suggesting a movement towards stability. The output also declined, albeit at a gentler rate, due to cash shortages and weaker demand.
Contrary to the decline in output and new orders, businesses enhanced their workforce for the eighth consecutive month. The rate of growth exceeded the long-term average and was almost equivalent to March's growth. Companies expanded their headcounts as they prepared for expansions.
The reduce requests for new work combined with sustained employment growth led to decreased spare capacity at Ghanaian companies. Backlogs declined significantly, marking the fourth consecutive month of decrease.
Vendor performance improved for the ninth month in a row, with delivery times shortening at the second-fastest pace in the series history. Firms attributed the improvement to larger workforces at suppliers, fewer pandemic-related restrictions, and relatively weak demand for inputs. As a result, purchases began to increase for the first time since the start of the year.
Despite marginal growth in the quantity of purchases, input inventories fell for the fifth consecutive month, although the decline was only mild. Geopolitical tensions, escalating material prices, and global shortages contributed to increased cost pressures in April.
The report suggests that firms may resort to discounting to stimulate demand, which could potentially impact profit margins. Nevertheless, business confidence rebounded to a three-month high, driven by hopes for new client wins, an end to international COVID-19 restrictions, and an improvement in overall demand. Some businesses also indicated plans to expand their operations over the next 12 months.
Shreeya Patel, economist at S&P Global, stated, "The April PMI data revealed a third consecutive monthly deterioration in business conditions in Ghana's private sector. Although the reduction was only modest, indicating a shift toward stability, the persisting weakness in demand remains a concern. To reinvigorate the demand, private sector firms may consider implementing discounts, but this move could compromise profit margins. Steep inflationary pressures persist as the primary challenge to Ghanaian enterprises."
The report indicates an expansion of workforce in Ghanaian businesses for the eighth consecutive month, with the rate of growth exceeding the long-term average.
Backlogs decreased significantly in companies, marking the fourth consecutive month of decline due to a decrease in spare capacity.
Vendor performance improved, and purchases began to increase for the first time since the start of the year, mainly due to larger workforces at suppliers, fewer pandemic-related restrictions, and relatively weak demand for inputs.
Despite businesses resorting to discounting to stimulate demand, the report suggests that this move could potentially impact profit margins, with steep inflationary pressures persisting as the primary challenge for Ghanaian enterprises.
