Source: newsthemegh.com
According to the Ghana Consumer Outlook Report by Fitch Solutions, unemployment (as a proportion of the labor force) is expected to increase slightly from 3.9% in 2022 to 4.0% by the end of 2023.
It predicts that unemployment will remain at 4.0% in 2024, and if this is followed by a decrease in inflation, many households will experience an increase in real incomes.
Although this is a little increase that shouldn’t have a significant impact on consumer spending, the unemployment rate has been climbing since 2017 and is predicted to do so for the foreseeable future and beyond.
The country’s low life expectancy rate of 64.3 years, which is a result of inadequate government healthcare spending, the prevalence of water-borne infections, and chronic illnesses like HIV/AIDS, reduces the size of the labor force.
According to the survey, firms must import people from overseas to cover any shortages in the domestic labor force due to a lack of highly skilled workers.
Fitch Solutions adds that although inflation is dropping, it is still greater than both the central banks’ targets and what consumers have come to expect, particularly over the previous ten years.
The impact of inflation it says, will not be spread evenly across the different consumer spending segments, with the prices of some components, such as rent; services; and some food items (e.g. meat and poultry), remaining stickier and elevated over H223.
“If nominal wages cannot keep up with these high rates of inflation, consumers will continue to see erosions in their purchasing power. The uneven nature of price increases will mean that consumers will have to increasingly allocate more of their disposable income towards meeting basic necessities. Over 2024, many markets will report significantly lower rates of inflation, as base effects play a role. If nominal wage growth continues to struggle to keep pace with inflation, household purchasing power will remain weak over 2024,” it stated.
Ghana’s consumer price inflation came in at 43.1% y-o-y in July 2023 with while food price inflation at 54.2% y-o-y, after having seemingly been on a downtrend since January 2023. This is significantly higher than what Ghanaian consumers are used to, where over 2015-2019, inflation averaged just 12.4% y-o-y.
Due to the high levels of inflation, real spending growth as well as consumer and business moods are all under significant downward pressure.
The Bank of Ghana’s recent interest rate decreases and the recent reacceleration of inflation both represent hazards to consumer purchasing power and will keep consumer debt service costs high, making it much more difficult to obtain new consumer credit.
“We forecast inflation to end 2023 at 25.2% y-o-y, however, should inflation remain sticky over H223, it will substantially weaken our consumer outlook into 2024. Over 2024, we forecast inflation to average 18.2% y-o-y, which will allow consumers to start prioritising more non-essential categories. The slowing of food inflation will be particularly beneficial for consumer spending on other goods and services given that food and non-alcoholic drinks account for more than 40% of total household spending in Ghana,” it added