AFP PHOTO / AMINU ABUBAKAR
Ghana’s consumer confidence has surged to its highest level in years as inflation tumbles toward single digits, though persistent weakness in bank lending threatens to constrain the economic recovery despite improving fundamentals across multiple sectors.
Consumer confidence reached 116.9 in August, approaching the mid-year peak of 119.2 and representing a dramatic improvement from 81.2 recorded twelve months earlier, according to the Bank of Ghana’s (BoG) latest survey data. Business confidence similarly climbed to 107.5 from 88.8 over the same period as firms exceeded short-term targets while expressing growing optimism about industry prospects.
The confidence surge reflects Ghana’s remarkable disinflation success, with headline inflation falling to 11.5 percent in August from 12.1 percent in July and down dramatically from 23.8 percent at the end of 2024 – marking the eighth consecutive monthly decline and reaching its lowest level since October 2021.
“The economy continues to demonstrate strong growth, driven largely by the services and agriculture sectors,” declared Governor Johnson Pandit Asiama following the central bank’s 126th Monetary Policy Committee (MPC) meeting, where officials implemented an aggressive 350 basis point rate cut.
Ghana’s Gross Domestic Product (GDP) expanded by 6.3 percent in the second quarter of 2025 compared with 5.7 percent for the same period a year earlier, with non-oil GDP rising by 7.8 percent. Services expanded 9.9 percent while agriculture grew 5.2 percent, offsetting contractions in the oil and gas sector.
High-frequency economic indicators reinforce the improving trajectory. The Composite Index of Economic Activity recorded annual growth of 6.1 percent in July, accelerating from 1.9 percent a year earlier and reflecting stronger trade, household spending and industrial output. Ghana’s Purchasing Managers’ Index also increased in August, signaling rising new orders across the manufacturing sector.
The disinflation breakthrough has created space for substantial monetary policy easing. The Bank of Ghana cut its policy rate by 350 basis points to 21.5 percent from 25 percent, prompting steep declines in government borrowing costs. Yields on the 91-day Treasury bill plummeted to 10.3 percent in August from 27.7 percent a year earlier, while average commercial lending rates fell to 24.2 percent from 30.8 percent.
Ghana’s currency stability has provided crucial support to the disinflation process. The cedi has gained more than 20 percent against the US dollar this year as foreign reserves climbed to US$10.7 billion, providing 4.5 months of import cover and strengthening the central bank’s ability to manage exchange rate pressures.
However, the economic recovery faces a critical constraint from weak credit transmission. Nominal private-sector credit expanded by only 13.3 percent in August compared with a year earlier, translating to just 1.7 percent real growth after adjusting for inflation.
For small business owners like Aunty Bee, who operates a cold storage facility at Adenta, the economic improvement brings mixed results. Customer demand has strengthened as prices stabilized, allowing better business planning compared to the volatile pricing environment of 2024.
“Last year, I could bring in a consignment of chicken and by the time I sold half of it, I had to raise prices again. Now, at least, I can plan,” she explained, highlighting the practical benefits of price stability for retail operations.
Yet access to finance remains her biggest operational challenge despite official interest rate reductions. “Even though interest rates are supposed to be lower, the banks are not eager to give us loans,” she said. “I end up relying more on suppliers’ credit and personal savings.”
The banking sector shows signs of improved resilience with capital adequacy rising to 17.7 percent in August from 10.2 percent a year earlier, while non-performing loans declined to 20.8 percent from 24.8 percent. However, the elevated level of bad loans continues discouraging banks from expanding credit, creating a bottleneck for economic growth.
Governor Asiama acknowledged that “elevated credit risk remains a major concern,” emphasizing that successful adherence to bank recapitalization plans will prove critical for sustaining financial sector stability and supporting broader economic recovery.
Ghana’s fiscal performance has provided additional support for the improving outlook. The government limited the budget deficit to 1.1 percent of GDP in the first seven months of 2025, beating its 2.1 percent target while recording a primary surplus of 1 percent. Public debt fell to 44.9 percent of GDP from 61.8 percent at the end of 2024, demonstrating significant fiscal consolidation progress.
The central bank projects inflation will fall within its 8 percent plus or minus 2 percent target band by year-end, though potential upward adjustments in utility tariffs remain a risk factor. The monetary authorities have indicated continued policy rate reductions remain possible if disinflation momentum persists without threatening financial stability.
Economic analysts emphasize that sustaining the current positive momentum will require credit growth acceleration to match the stronger macroeconomic fundamentals. The disconnect between improving economic indicators and sluggish lending represents a key challenge that could limit Ghana’s recovery potential despite the remarkable progress in inflation control and business confidence.
The coming months will test whether banking sector reforms and continued monetary policy easing can unlock the credit flows necessary to fully capitalize on Ghana’s improving economic fundamentals and translate rising confidence into sustained growth acceleration.
Source: newsghana.com.gh
