STANBIC PMI: Uganda’s private sector sustains growth in June

by Business Times
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private sector

Despite a slight drop in the monthly Stanbic Purchasing Managers’ Index (PMI) from 57.4 in May to 56.4 in June, Uganda’s private sector remains optimistic as improving customer demand continues to drive output growth through new orders.

The Stanbic PMI, compiled by S&P Global through questionnaires sent to purchasing managers in around 400 private sector companies, covers diverse sectors such as agriculture, mining, manufacturing, construction, wholesale, retail, and services.

The PMI, which comprises weighted indices including New Orders, Output, Employment, Suppliers’ Delivery Times, and Stocks of Purchases, signals an improvement in business conditions when readings are above 50.0 and deterioration when below 50.0.

Mulalo Madula, an Economist at Standard Bank, highlighted that despite the minor dip, the PMI indicates the private sector’s consistent expansion for the 11th consecutive month, remaining above the series average. The sustained performance above the average since March 23 aligns with other data pointing to robust growth.

Madula added, “Rising new orders have boosted economic activity despite a less favorable external environment, considering new export orders have been in contractionary territory since the beginning of the year.”

The June survey revealed that output has been on a monthly rise for almost a year, with the latest expansion attributed to stronger customer demand and promising signs of improving economic conditions. Notably, agriculture, construction, industry, services, and wholesale & retail sectors experienced increased activity.

In line with the positive output growth, panelists reported success in acquiring new customers. The rise in new orders also encouraged companies to expand their workforce and increase purchasing activity throughout June.

Employment witnessed its third consecutive month of growth, with job creation observed across all five broad sectors. The increased workforce enabled firms to manage workloads efficiently and reduce outstanding business, despite some reports from panelists suggesting that new order growth was putting pressure on capacity.

Madula emphasized that as personal consumption expenditures account for approximately 74% of Ugandan GDP, growth in output supported by rising demand indicates a robust business environment. The increase in purchasing activity, leading to rising inventories, hints at potential short to medium-term production increases. Moreover, investments in the oil sector are expected to underpin growth. Hence, firms maintain their optimism for the next 12 months based on increased demand.

The expansion of purchasing activity, coupled with faster deliveries from suppliers, resulted in inventories increasing for the eighth consecutive month.

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However, input costs rose due to higher prices of construction materials, electricity, water, purchase prices, and staff costs. Wages and salaries also increased to mitigate the impact of rising living costs and attract new hires.

Purchase costs experienced an increase in June, with the current sequence of inflation approaching two years. Respondents mentioned rising prices of cement, computing equipment, electronic products, and land throughout the month.

The passing on of higher input costs to customers led to a rise in output prices for the third successive month. The industry sector was the exception, posting a fall in selling prices in June.

Although outstanding business continued to decrease, some panelists reported that the growth of new orders had started to strain capacity. Backlogs of work have consistently decreased since the survey began.

Ugandan companies remain optimistic about increased output over the next 12 months, with their positive sentiment often reflecting confidence in securing new customers. More than 87% of respondents predicted an expansion in activity, highlighting the resilience and potential for growth in the private sector.

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