By Vuyani Ndaba
July 29, 2010 3:45 PM EDT
Oil production will help Ghana's economic growth nearly triple in 2011, and the new revenue flows will narrow both current account and fiscal deficits, a Reuters survey showed on Thursday.
But inflation, which the government has managed to lower to single digits over the last year, looks set to rebound on increased economic activity, wages rises and utility price hikes.
A survey of nine economists put Ghana's growth in 2010 at a median of 5.8 percent followed by a hefty 14.0 percent in 2011. Some including the International Monetary Fund think the rate will top 20 percent next year, one of the highest in the world.
"We saw several signs of strain in the economy in the early months of this year," said Lisa Lewin of Business Monitor International, citing falling VAT collection, real credit to the private sector and a fall in the Bank of Ghana's composite index of economic activity.
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"Nevertheless, the broad picture is still positive ... In 2011, we see growth jumping into the double digits thanks to the onset of domestic oil production," she added.
Ghana is the world's No. 2 cocoa grower and a major gold producer and is enjoying historically high prices for both, helping it avoid the single-commodity dependence curse that has hurt many other African oil nations.
Lewin said that growth was likely to be supported by monetary easing and the loosening of fiscal policy.
A key factor to watch, however, remains Ghana's re-basing of the economy, which is due by year-end and is meant to include parts of the informal economy in data and rebalance weightings.
"According to preliminary calculations by the IMF and local banks, the undervaluation of the size of the economy could be as much as 50 percent," said Thalma Corbett of NKC Independent Economists.
INFLATION RISING SHARPLY
Citing stable inflation as grounds for pushing the policy rate down to its lowest level since January 2008, the Bank of Ghana cut its key rate by 150 basis points to 13.5 percent in July.
The move was deeper than expected and analysts were divided on whether Ghana -- which has seen a total 500 basis points of rate cuts since last November -- would cut further.
Inflation, which dropped to 9.52 percent in June from peaks of over 20 percent in 2009, is seen back up later this year to 12 percent before falling to 11.2 percent, according to the median.
"We see inflation rising sharply over the second half of the year, not just due to base effects, but also owing to relative currency weakness as well as recent increases in electricity tariffs and public sector pay," Lewin said.
Corbett said inflationary pressures would be offset by a number of factors, including lower food prices.
President John Atta Mills, who came to power after a hotly contested election at the end of 2008, said he had inherited a public deficit of 24.2 percent. Emergency measures have brought this under control since then.
According to the median figures from the poll, Ghana's current account and fiscal deficits will fall as percentages of GDP from 11.6 percent and 8.2 percent to 7.4 percent and 5.8 and percent, respectively.
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