Oil sector drags growth down to 3.9%

The oil sector has contracted for the sixth quarter in a row, resulting in a slower-than-expected expansion in the economy in the second quarter of this year.

The sector contracted by 10.6 per cent in the second quarter of 2021, partly dragging overall gross domestic product (GDP) growth down to 3.9 per cent in the period under review.

Analysts now fear that the situation could persist into the fourth quarter and cause the government to miss its 5.1 per cent growth target.

Data from the Ghana Statistical Service (GSS) show that the oil sector has been contracting since the first quarter of 2020, largely on account of weak production and a slowdown in reinvestments by the producers.

Oil production fell by more than six per cent to 66.93 million barrels last year, the first in three years after the COVID-19 pandemic forced producers to cut output to make up for a weak price.

Mining & quarrying

The quarterly contractions hit a new low in the first quarter of this year when the oil sector registered a 15.2 per cent contraction.

Together with weak growth rates in the mining sector, the mining and quarrying subsector contracted by 18.9 per cent in the second quarter of this year.

Ramp up output

An economic analyst, Dr Said Boakye, said the government must impress upon oil producing companies to ramp up production of the resource to help make up for the weakness in growth witnessed in the oil sector.

With a barrel of oil selling above $60, the economist said there was no justification for the firms to slow down production, leading to the weak growth rates posted in the oil sector in the first and second quarters.

While noting that non-oil sector growth has been impressive at 5.2 per cent in the second quarter, the Head of Research at the fiscal policy institute, the Institute for Fiscal Institute (IFS), said the same could not be said of the oil sector growth.

“The mining and quarrying subsector has been dragging down the growth. Overall, the second-quarter growth, just like the first quarter, has not reached five per cent.

“What it means is that the annual growth target of 5.1 per cent will be difficult to realise unless growth in the oil sector rises,” he said.

Consequently, Dr Boakye said the government would have to convince the producers to increase production to help take advantage of the price or risk missing this year’s growth target, pegged at 5.1 per cent in the 2021 budget.

Sectorial growth

The data from the GSS showed that the service sector recorded the highest growth of 11 per cent followed by the agricultural sector, which grew by 5.5 per cent. The industry sector contracted by 4.3 per cent.

In the agricultural sector, the data showed that the crops sub-sector grew by 0.9 per cent compared to 1.4 per cent in the first quarter of 2021.

The livestock subsector also grew by 1.2 per cent compared to 1.3 per cent recorded in the first quarter of 2021.

In the industry sector, the data showed that the key drivers of growth were the construction sub-sector, which recorded a 0.6 per cent growth in the second quarter of 2021, compared to a 3.5 per cent expansion recorded in the first quarter of 2021.

The manufacturing sub-sector also grew by 1.8 per cent in the second quarter of 2021 compared to a growth of two per cent in the previous quarter.

“In the services sector, real estate grew by 1.7 per cent in the second quarter of 2021 compared with 2.4 per cent growth in the first quarter. Information & communication expanded by 4.3 per cent in the second quarter of 2021, same as recorded in the first quarter while the trade; repair of vehicles, household goods also grew to 2.2 per cent in the second quarter of 2021 compared to a growth of 0.8 per cent in the previous quarter,” the data showed.

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