The economy faces new threats as global growth slows

News from Sunday, January 27, 2019

Source: thefinderonline.com

2019-01-27

Ghana's economy, like that of other emerging countries, is expected to collapse under new external pressures as global economic growth slows to 2.9 percent this year.

The latest development stems from trade tensions between the United States and China and the ongoing slowdown in the Chinese economy.

According to the World Bank, the global economic growth rate is expected to slow to 2.9 percent in 2019, down from 3 percent in 2018.

In its report on the global economic outlook, published two weeks ago, the World Bank said that the outlook for the global economy "has become darker" as funding conditions tighten, trade tensions rise. reinforced "and that some major emerging and developing markets stress the financial markets.

"Faced with these obstacles, the recovery in emerging and developing market economies has lost momentum," the report says.

China has had its slowest annual economic growth rate since 1990, reaching 6.6% in 2018. Many manufacturing firms in the world's second-largest economy are reported to have reduced production due to growing export uncertainty as a result of tariffs imposed on China by the United States.

The imminent threat to Ghana's economy is the deficit in its export earnings (from Ghana), as China's economic growth affects international commodity prices.

This comes at a crucial time, as Ghana recently reformed its economy by developing nearly 25% and hopes to maintain its economic growth.

After being a loser in recent years, world oil prices have recovered from the beginning of 2018 and traded between $ 65 and $ 75 per barrel until the last quarter of that year, when raw material prices fell up to 43 dollars.

Crude oil is one of China's largest imports.

At the same time, the price of Ghana's benchmark 2019 crude oil, as reported in the 2019 budget statement, has been set at USD 66.76 per barrel. Although it is early in the year to worry about the shortfall in oil revenues, it will suffice to note that raw material prices must not yet exceed US $ 54, three weeks after 2019. If this continues for a larger part of the year, this could distort the baseline oil revenues in Ghana.

It will be remembered that in 2015, the government had to revise downward its oil revenue forecasts, which went from $ 80 originally in the 2015 budget to $ 57, because of the drop in world oil prices.

Ghana is no better off on world prices for its other traditional export products.

The price of gold fell below $ 1,300 an ounce in the middle of 2018 and has traded at an average of $ 1,220 for the remaining months of this year. Merchandise has remained stable since the beginning of the year at $ 1,290, but slipped to close trades last week and is currently trading at $ 1,279.

After the beginning of the year, cocoa prices rose from $ 2,440 per ton to $ 2,249.

Another external development that threatens Ghana's economic stability this year is the expected rise in US Federal Reserve interest rates. Fed Bank officials have forecast two increases this year and although less than the four increases recorded in 2018, this year could potentially affect foreign direct investment inflows into Ghana and weigh on the local currency.

Ghana's economic performance in 2019 – as a result of last year's economic redesign – is expected to face the slowdown as it does with its own domestic economic instability, such as inflation and Cedi depreciation.