Confidence climbs as inflation falls but weak credit growth clouds outlook

By Joshua AMLANU & Ebenezer NJOKU

Businesses and households are reporting their strongest levels of optimism in years owing to the fall in inflation and overall cedi-appreciation since beginning of the year, the Bank of Ghana’s latest survey has shown – with consumer confidence at 116.9 in August, just below a mid-year peak of 119.2 and markedly higher than 81.2 a year earlier.

Similarly, business confidence rose to 107.5 from 88.8 over the same period as most firms met short-term targets and voiced optimism about prospects for their industries.

“The economy continues to demonstrate strong growth, driven largely by the services and agriculture sectors,” Governor Johnson Pandit Asiama said following the central bank’s 126th Monetary Policy Committee meeting.

Gross domestic product expanded by 6.3 percent in the second quarter of 2025 compared with 5.7 percent for the same period a year earlier. Non-oil GDP rose by 7.8 percent, with services expanding 9.9 percent and agriculture by 5.2 percent.

High-frequency indicators also point to improving conditions. The Composite Index of Economic Activity recorded annual growth of 6.1 percent in July, up from 1.9 percent a year earlier and reflecting stronger trade, household spending and industrial output. The country’s Purchasing Managers’ Index also increased in August, signalling a rise in new orders.

Falling inflation has been central to the rebound in confidence. Headline inflation eased to 11.5 percent in August, down from 23.8 percent at the end of 2024 – the lowest in four years and eighth consecutive monthly decline. Non-food inflation fell to 8.7 percent from more than 20 percent a year earlier.

The disinflation trend has been supported by tighter monetary policy, fiscal consolidation, improved food supplies and a firmer cedi. The currency 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.

Lower inflation has created room for a gradual reduction in interest rates. The Bank of Ghana cut its policy rate by 350 basis points to 21.5 percent, prompting a steep fall in short-term government borrowing costs. Yields on the 91-day Treasury bill dropped 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.

Nonetheless, credit growth has been sluggish, coupled with lingering banking sector vulnerabilities which risk limiting the recovery.

Broadly, credit transmission into the wider economy remains weak. Nominal private-sector credit expanded by 13.3 percent in August compared with a year earlier; but once adjusted for inflation, growth was only 1.7 percent.

For traders such as Aunty Bee (not her real name) – who operates a cold storage facility at Adenta, the improvement in demand has been noticeable. She said customer demand had strengthened as prices stabilised.

“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.

She however added that access to finance remains her biggest challenge.

“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,” she further stated.

The banking sector is showing signs of improved resilience as capital adequacy rose to 17.7 percent in August from 10.2 percent a year earlier, while non-performing loans fell to 20.8 percent from 24.8 percent. Still, the level of bad loans remains elevated – discouraging banks from expanding credit.

Dr. Asiama acknowledged that “elevated credit risk remains a major concern”, adding that successful adherence to recapitalisation plans will be critical to sustaining stability.

Fiscal performance has also supported the more positive outlook. Government limited the budget deficit to 1.1 percent of gross domestic product in the first seven months of 2025, beating its 2.1 percent target and recording a primary surplus of 1 percent. Public debt fell to 44.9 percent of GDP, down from 61.8 percent at the end of 2024.

The central bank expects inflation to fall within its 8 percent plus or minus 2 percent target band by end of the year, though upward adjustments in utility tariffs remain a risk. Economists note that sustaining momentum will require credit growth to accelerate in order to match stronger macroeconomic fundamentals.

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