Weak Consumption, High Unemployment Biggest Threat to Recovery — Databank Research

Databank Group Research has cautioned that weak consumer spending and a persistently high unemployment rate pose a greater threat to Ghana’s economic recovery than inflationary pressures, particularly as fiscal consolidation efforts continue.

In its 2026 economic outlook, the firm argued that while macroeconomic indicators are improving, the softness in the labour market could delay a full recovery.

“We concur that Ghana’s labour market remains soft, and the creation of jobs may take time to materialise. We expect hiring conditions to stabilise gradually as growth strengthens, but persistent structural constraints suggest a slow recovery in employment momentum,” the report stated.

Softer Credit Conditions Needed

Databank Research suggested that easing credit conditions could help revive struggling businesses and enable refinancing of legacy debt accumulated during previous periods of economic stress.

The recommendation comes after the Bank of Ghana cut its policy rate by 250 basis points to 15.5% in January 2025, despite elevated risks in the banking sector.

The Non-Performing Loan (NPL) ratio — excluding provisional losses — remains high at 20–23%, reflecting lingering financial sector vulnerabilities.

According to the firm, more accommodative credit conditions could support enterprise recovery while helping businesses restructure outstanding obligations.

Inflation Forecast to Fall to 5.09% in 2026

On inflation, Databank Research projects that headline inflation will decline to 5.09% by end-2026, outperforming the central bank’s 8% ± 200 basis points target band.

The outlook is anchored on:

• Expected improvement in food supply

• Stable exchange rate conditions

• Reduced excess liquidity in the system

The firm anticipates bumper food harvests and smoother supply chain dynamics to keep month-on-month Consumer Price Index (CPI) volatility below 6%.

It noted that previous contractionary monetary measures by the central bank have absorbed much of the excess liquidity carried over from 2024, thereby reducing demand-pull inflation risks.

“As softer fiscal actions take hold, we expect cost-push pressures to remain fairly contained,” the report added.

Recovery Hinges on Jobs and Spending

While inflation appears on a downward trajectory and monetary conditions have eased, Databank Research maintains that sustainable recovery will depend heavily on improvements in employment and consumer confidence.

Without stronger job creation and a rebound in household consumption, the firm warns that Ghana’s recovery could remain fragile despite macroeconomic stability gains.

Source: Accra Business News