Ghana real GDP growth, 2020-2023
Source: Ghana Statistical Services
It seems that the Ghanaian economy has started to show signs of stability. Certainly, provisional real GDP in volume terms for Ghana was estimated to have increased by 4.2% in the first quarter of 2023 compared to the same period in 2022, according to the recent figures released by the Ghana Statistical Services, which explained that when seasonally adjusted, Ghana’s real GDP increased by 1.1% in the first quarter of 2023. This news is important to restore confidence in the Ghanaian economy after a year of economic hardship.
This economic expansion was essentially driven by strong growth in the services sector and agriculture. The services sector grew by 10.6% in the first quarter, led by the health and education sub-sectors. Agriculture grew by 4.8%, supported by good weather conditions.
The industry sector contracted by 3.2% in the first quarter, mainly due to a decline in mining activity. The Ghanaian economy is expected to grow by 2.9% in 2023, according to Fitch Solutions. This is below the five-year pre-pandemic average of 5.3%. The growth forecast is being weighed down by high inflation, which is expected to average 18% in 2023.
The growth of the service sector is the primary consequence of that economic expansion. Indeed, the services sector is the largest sector of the Ghanaian economy, accounting for about 50% of GDP. It grew by 10.1% in the first quarter, led by the health and education sub-sectors. This was due to the increasing demand for healthcare and education services in Ghana.
Second, the weather played a massive role in the agricultural sector. Undeniably, good weather conditions supported the growth of the agricultural sector in the first quarter. The sector grew by 4.8%, driven by the production of cocoa, corn, and rice. The Ghanaian agricultural production was not affected by the fluctuations of climate change.
Third, a series of increased investments contributed to that economic expansion. There was, indeed, an increase in investment in Ghana in the first quarter of 2023. The International Monetary Fund (IMF) loaned Ghana about $3 billion to revitalize its economy after a series of uncontrolled expansionary monetary policies, which weakened the Ghanaian Cedi and triggered inflation into the double digits. Investments increased in Ghana during the first quarter thanks to the government's efforts to improve the investment climate in the country.
As was aforementioned, this economic expansion in Ghana is a good sign, which shows that Ghana is on the path to economic recovery. This growth remains nonetheless fragile for a few reasons.
First, Ghana still has high inflation. According to the Ghana Statistical Services, the year-over-year inflation rate at factory prices for all goods and services was 43.9% in April 2023, and the monthly producer inflation rate was 2.8%. Second, Ghana is still exposed to a weak external demand. This is based on the expectation that the global economy is expected to grow at a slower pace this year, as central banks raise interest rates all around the world. This could lead to a decline in exports from Ghana. And third, political uncertainties remain an issue and a serious threat to the Ghanaian economy, especially with the upcoming general elections. Ghana, so far, has been considered an example of functional democracy in Africa, but the economic hardship that Ghanaians endured could lead to political resentment, and this could deter investors and slow down economic growth in the future.