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\n<\/div>\nA report by the Bank of Ghana that assesses the impact of external shocks on Ghana\u2019s economy has revealed the cedi\u2019s depreciation against the US$ is expected to continue throughout the year, as global events show more external threats ahead.<\/span><\/p>\n The report, titled \u2018The Effect of External Conditions on the Economy of Ghana\u2019, is authored by Philip Abradu-Otoo and Bernard Jagre Walley of the BoG\u2019s Research Department.<\/span><\/p>\n <\/p>\n It says an expected slowdown in the U.S. and Chinese economies, alongside policy rate hikes in the U.S., strengthening of the $ and higher crude oil prices will all impact Ghana\u2019s economy negatively \u2013 leading to a \u201csignificant deterioration in the exchange rate\u201d.<\/span><\/p>\n \u201cThe slow-down of the world\u2019s two biggest economies will dampen growth in emerging and developing economies, including Ghana, which will result in capital outflows; whereas policy rate hikes in the US will attract investors, also triggering capital outflows from Ghana to the U.S. and resulting in high demand for the dollar, while a surge in oil prices will, although stabilising growth, further increase inflation \u2013 which will also culminate in a sharp depreciation of the cedi.<\/span><\/p>\n <\/p>\n \u201cThe results show that a simultaneous slowdown in the world\u2019s two largest economies will dampen GDP growth in Ghana, induce a significant deterioration in the exchange rate, and induce a marginal increase in the domestic inflation rate and a sharp rise in interest rates.<\/span><\/p>\n \u201cIt further says a surge in oil prices leads to a relatively stable GDP growth. Inflation declines initially but picks up marginally after three quarters, while the exchange rate depreciates sharply,\u201d the report states.<\/span><\/p>\n Commenting on the report, financial analyst <\/span>Dr<\/span><\/span>\u00a0Richmond Atuahene told the B&FT that the local currency\u2019s future looks gloomy<\/span><\/p>\n \u201cIf you look at the currency depreciation, it doesn\u2019t look good. It may depreciate more than 15 <\/span>per cent<\/span><\/span> this year. And once the interest rate in America goes up, people will disinvest their bonds and rather go and invest in the U.S. \u2013 and this will definitely put pressure on the cedi. So, all the report is saying is that it doesn\u2019t look good from the currency point of view,\u201d he said.<\/span><\/p>\n <\/p>\n The report further shows that about 40 <\/span>per cent<\/span> of the variation in Ghana\u2019s real GDP growth is accounted for by external influences. What this essentially means is that any activity \u2014 be it positive or negative \u2014which happens with Ghana\u2019s trading partner countries can affect economic growth by 40 <\/span>per cent<\/span><\/span>.<\/span><\/p>\n An economist at the University of Cape Coast, Professor John Gatsi, said this shows how integrated the country\u2019s economy is with other economies, and should not be a cause for worry.<\/span><\/p>\n \u201cWhen situations are favourable, the activities in those economies will help you also develop; because when they are doing well, they will invest in other countries. But when something negative is happening to them, it will affect you.<\/span><\/p>\n <\/p>\n \u201cFor example, we are supposed to receive some US$2billion from China. If the economic situation does not support their ability to give you that US$2billion, it will not come. So, it is explaining our linkage with some economies,\u201d he said.<\/span><\/p>\n The report recommends that policymakers should implement measures that can absorb some of the external shocks to mitigate their effect on the local economy.<\/span><\/p>\n \u201cThe results thus imply that external factors play an important role in the Ghanaian economy. Domestic fundamentals may either act to amplify or dampen the impact of these external developments on the Ghanaian economy. Policymakers should,\u00a0<\/span>therefore,<\/span><\/span> continue to improve the macro fundamentals to dampen the effects of external shocks on the Ghanaian economy.\u201d<\/span><\/p>\n <\/p>\n It proposes measures like fiscal discipline, reduction in external debt, building forex buffers, continuing with the ongoing disinflation process, and appropriate monetary policy measures to stabilise the economy.<\/span><\/p>\n \u201cIn the long-term, promoting exports would help to reduce the pressure on the cedi,\u201d the report states.<\/span><\/p>\n \u00a0<\/p>\n<\/div>\n