Business Confidence In Economy Soars

Business confidence in economic activities increased during the first six months of the year, because there was relative economic stability during the period, a Databank Equity Research has said.

"The rate of inflation declined while the local currency depreciated marginally during the period under review"

Consequently, the Monetary Policy Committee, which is responsible for price stability revised the prime rate twice during the period thus moving down interest rates on treasuries and bank lending.

The review said the food index for the first six months registered an average monthly increase of 2.5 per cent as against 3.3 per cent for the same period in 2003. The non-food index averaged 0.9 per cent while it was 4.3 per cent for the same period in 2003.

Explaining the reasons for slow growth in the non-food index, the research said it was aided by the absence of petroleum price increases, which is a major catalyst in the non-food index.

Also the relatively higher increase of the food index of the consumer price index during the first half of the year was the result of heavy dependence of food production in the country on rainfall and the lack of storage facilities. It recalled that the period through March to May was used to prepare land in the agricultural sector pending rains for June and July and that accounted for high food prices.

However, favourable weather patterns in the second half of the year tend to boost food production and leads to food index component of inflation declining.The review acknowledged that once the impact of the near doubling in fuel prices in 2003 had subsided, it was expected that the inflationary pressures on the economy would slow down.

The implementation of the National Health Insurance Levy, which took effect from August 1 this year will slightly impact negatively on the real income of consumers while it would on the other hand ease the health care expenditure burden on consumers.

On the depreciation of the cedi, the review said, the currency depreciated by 3 per cent against the pound sterling while it firmed up by 2.2 per cent against the euro on the interbank market.

On the forex market, the cedi depreciated by 2.8 per cent during the period under review. The review noted that the significant inflow of foreign currency into the economy from remittances and export earnings coupled with business confidence in the economy resulted in a stable cedi. Foreign currency transfers from individuals amounted to $611.5 million for the first quarter an increase of 15 per cent over the same period in 2003.

Furthermore, cocoa export earnings stood at $218 marginally higher that the corresponding period for 2003. Besides, gold earnings for the first quarter was $295m showing an increase of 56 per cent over the same period in 2003.

The review said those factors contributed significantly to the improvement in Ghana's current Account balance and no wonder the first quarter showed a surplus of $156 million compared to a deficit of $1.5m for the same period in 2003.