Economic activity in Uganda increases as BTI, PMI show positive outlooks

KAMPALA, September 24, 2024 – Economic Activity Economic activity in Uganda continued to increase following a pick-up in consumer demand, which further boosted confidence in business conditions as indicated by the Purchasing Managers’ Index [ PMI ] and the Business Tendency Index [BTI] in August 2024, according to the Performance of the Economy Monthly Report August 2024 released by the Ministry of Finance, Planning and Economic Development [MOFPED].

“Despite a slight decline in the Composite Index of Economic Activity [CIEA] to 165.89 in July 2024 from 166.22 the previous month, the PMI and BTI in August 2024 indicated growth in economic activity,” says the report.

The PMI

According to the report, the PMI increased to 56.3 in August 2024, up from 53.7 the previous month, indicating continued improvement of private sector performance. “Higher consumer demand contributed to the continued expansion in both output and new orders,” says the report.

To increase capacity for the new orders, the report says, local companies increased their staffing levels during the month. Despite higher input and staff costs during the month, selling prices declined in a bid to attract new customers by business owners, says the report.

“Some of the inputs that recorded higher prices include timber, paper products, cereals, cement, and toiletries,” adds the report.

However, the strong demand conditions enabled firms to increase their output and sales during the month. Growth in output and new sales was registered in all monitored sectors including agriculture, mining, manufacturing, construction, wholesale, retail, and services.

Business perceptions

Private sector sentiments about business conditions remained optimistic in August 2024 as shown by the BTI  that was above the 50-mark threshold, says the report. “The BTI increased to 59.67 in August 2024 from 59.19 recorded the previous month, indicating increased confidence about the business conditions partly attributed to the increased consumer demand,” adds the report, noting that optimism was registered in all monitored sectors such as agriculture, manufacturing, mining, and wholesale trade.

Exchange rate movements

According to the report, the Uganda Shilling, which had appreciated over the previous four months against the dollar, depreciated on average by 0.5 percent in August 2024. “This depreciation was driven by stronger demand for the dollar from corporates and traders which outweighed the high inflows mainly from coffee exports and NGOs,” says the report.

During the month, the Shilling registered an average mid-rate of Shs. 3,723.6/USD compared to Shs. 3,705.9/USD recorded in July 2024. “Despite the loss during the month, the average mid-rate remained below the 12-month peak of Shs. 3,895.8/USD registered in March 2024,” says the report

“The local currency is anticipated to remain relatively stable in the near term as inflows from remittances and export receipts boost the supply of forex,” says the report. “The Shilling likewise depreciated against the British Pound Sterling and the Euro by 0.5 percent and 2.0 percent, respectively in August 2024.”

Lending rates slightly move up

The report says the weighted average lending rates for Shilling-denominated credit increased slightly from 17.64 percent in June 2024 to 17.76 percent in July 2024. “Similarly, foreign currency-denominated credit rates increased from 9.23 percent in June 2024 to 9.62 percent in July 2024,” says the report.

Interest rate movements

On August 7, 2024, the Bank of Uganda [BoU] reduced the Central Bank Rate [CBR] to 10.00 percent from 10.25 percent, attributing it to the continued decline in inflation below the medium-term policy target of 5 percent. “This is due to the fading impacts of global shocks like the war in Ukraine and COVID-19, alongside the relative stability of the shilling against the US dollar,” the report quotes BoU.

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