New export orders improve for second straight month in December as private sector activity growth falls

Business conditions in the private sector improved at a slightly slower pace in December compared to the previous month, according to the Stanbic Bank Uganda Purchasing Managers’ Index.

The index came in at 54.3, slightly lower than November’s 54.9. The PMI, which is produced by global research firm IHS Markit, is a monthly survey of purchasing executives in 400 private sector companies selected to represent the true structure of the economy.

Despite the dip, the reading indicates that business conditions improved further in the private sector. A PMI above 50 shows there is some level of increased activity, while a reading below 50 signifies a contraction. A PMI at 50 indicates that there was no change.

“The PMI has averaged 54.0 in the fourth quarter of 2017 up from an average of 52.4 in the nine months to September, as economic activity gradually improves,” Jibran Qureishi, Regional Economist East Africa at Stanbic Bank noted.

Private sector activity could improve further with a growth in commercial bank credit, Mr Qureishi said, but the “high non-performing loan ratio within the banking sector will probably keep the recovery moderate”. He, however, expressed optimism that the economy will expand further in 2018 on the back of an increase in public investment expenditure, which is projected at 21.1% of GDP in 2017/18.

All the five monitored sectors – agriculture, services, wholesale and retail, construction, and industry – registered stronger business conditions in December, the report says.

Like in November, growth in new orders rose, driven by an increase in export orders for the second consecutive month. This was a result of an improvement in the political conditions of key trading partners, Kenya especially. Companies increased their output because of the new business.

The rise in new business volumes prompted companies across all the sectors to make new hires so they could meet the demand. They also purchased more inputs and other commodities, leading to a rise in stocks of purchases.

Additionally, firms in industry, services, and wholesale and retail sectors raised the prices they charged for their goods and services. Output prices were steady in the agriculture and construction categories, on the other hand.

Input prices also rose across all the five sectors, in keeping with a trend observed throughout the survey’s history. IHS Market says this was due to an increase in purchase prices and staff costs.