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Economy set to pick up

By Daily Graphic
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The economy is expected to pick-up in the weeks ahead as the conclusion of the election petition hearing gives a lift to investor confidence. Though geopolitical events may see crude prices pose some upside risks, it is likely a compromise may be reached.

The uptick in the prices of gold and cocoa is also projected to bolster government finances while on the currency front; the cedi may be propped-up from recent inflows.

On the money market, rates are expected to head southwards as the inflows strengthen the Central Bank's ability to bring money market rates down.

Additionally, plans by the government to replace expensive short-term borrowing costs with cheaper long-term funds may tilt rates down in the weeks ahead. Investors are thus expected to continue locking-in long-term rates on the back of the foregoing.

As the Central Bank's Monetary Policy Committee (MPC) meets this week it is likely it may keep its Policy Rate unchanged or trim it marginally. The Cedi's recent stability, sliding money market rates and the drop in inflation are also expected to inform the MPC's decision making.

The major concerns going forward would be the increases in utility tariffs and agitations on the labour front. Already, businesses are sweating on higher fuel costs and borrowing rates.

That aside, the introduction of the stabilisation levy and higher taxes is set to squeeze their bottom-line

Economic activity on the domestic front which had been plagued by erratic power supply and higher fuel costs also suffered as uncertainty during the proceedings and possible aftermath effects forced both domestic and foreign investors to peg back their activities.

Initial estimates on the cost of the petition on the nation's finances has been put at about US$5 billion or GH¢10 billion in investments and loss of income.  With government's revenue already squeezed by the high wage bill and mounting deficit, the verdict would be a great relief as it is expected to give a boost to investor confidence and also give the government the focus needed to work at achieving its targets for the year.

In other news, inflation fell in August, the first time in seven months on the back of falling food prices. Month end inflation for August stood at 11.5 per cent down from 11.8 per cent in July. Inflation has edged up since February following the upward adjustment of fuel prices and the weakening Cedi.

However, recent inflows from loans for cocoa purchases and the sale of Eurobonds in July has seen the local currency gain some stability as foreign-currency reserves have been given a boost.

However, the world economy made some gains during the month of August with most of the major economies releasing strong economic numbers.

In other areas, euro zone businesses register their best month in over two years. Markit's Eurozone Composite Purchasing Managers Index (PMI) was up to 51.5 from 50.5 in July, its highest level since June 2011.

Though some countries in the region faced challenges, recent trends led to businesses' optimism about the future rising to a 17-month high.

Still in Europe, Britain whose economy nearly slipped into recession earlier in the year also reported resilient growth numbers with its services sector recording its fastest growth in more than six years.

Elsewhere, the Chinese economy which had been on the backfoot in recent months got a lift with data showing that growth in its services sector hit a five-month high, helped by new orders and optimism among businesses.

The gains chalked up by the global economy, in addition to supply and political developments also gave a boost to commodity prices. Supply disruptions to crude oil in Libya, Iraq and Nigeria saw Brent crude climb almost six per cent in August, its biggest gain in 12.

Investor anxiety about instability in the Middle East also supported gold prices with the precious metal registering a gain of 5.5 per cent.

With cocoa, daily average prices monitored by the International Cocoa Organisation rose from US$ 2,309 in July to US$2,484 per tonne in August as adverse weather conditions in Côte d'Ivoire and Ghana, in addition to analysts' expectations of supply deficit in the 2013/2014 cocoa year, stirred price.

Graphic Business/Ghana

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