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23.05.2007 General News

Economic growth down, deficit up as power crisis continues

By Mary Morgan

For the first time since 2001, economic growth for 2007 is expected to be lower than the previous year, largely as a result of the energy crisis.

The Economist Intelligence Unit Report, the internationally-reputed research arm of the Economist newspaper, has revised its predictions for this year in the light of the ongoing lights-out problem. Gross Domestic Product is now expected to rise by just 5.7 percent, down from the previous forecast of 6.2 percent.

Power shortages are also behind an increase in the predicted current-account deficit, now expected to be 6.1 percent instead of 5.7 percent.Meanwhile, Bank of Ghana targets of single-digit inflation are not realistic, according to the Economist experts, who are instead predicting a rise in inflation during the second half of the year - to 10.2 percent at the end of 2007, and 10.5 percent next year.

The revised predictions come in the same week as several other negative projections. Databank, the country's leading financial service provider, is also anticipating a reduction in growth as a direct result of the energy crisis: the economy stands to lose $1.4 billion by the end of the year if the situation does not let up, according to Daniel Ogbamey Tetteh, head of the research unit.

The Monetary Policy Committee of the Bank of Ghana has also admitted the power crisis is hindering national growth. Speaking at an MPC presentation this week Paul Acquah, Governor of the Bank of Ghana, said that the load shedding programme will prevent the Ghanaian economy from surpassing the BoG growth estimate of 6.5 percent this year. However, he denied that the bank is preparing to follow the Economist in cutting that prediction.

The Economist report cites the effect of the power crisis on both the manufacturing and services sector, and in particular the closure in April of the Volta Aluminium Company facilities – with more job cuts also predicted. The reduction in electricity supply is likely to increase tariffs for utilities and raise costs for domestic producers, which are then likely to be passed on to consumers, according to the report.

The outlook is not all bad, as the Intelligence Report places a current deceleration in growth in the context of recent economic successes and continued optimism for the future:

"Positively for the government, real GDP growth is forecast to remain reasonably strong, owing to a high international price for gold and a good cocoa harvest. Against the background of a stable inflation rate and a steady cedi, the NPP will be able to campaign on a sound macroeconomic record."

Already, GDP has grown from $6.2bn in 2002, to an estimated $11.9bn in 2006, and real GDP growth is estimated to have grown by 6 percent in 2006, reflecting a high international price for gold and a record year for cocoa production.

For certain sectors, the outlook remains very positive. The report predicted continued strong growth in the cocoa sector and in the agricultural sector in general. Furthermore, "high international gold prices and production from new mines will offset any negative effect from the power shortages on the contribution of gold mining to overall economic growth," according to the Economist team.