Business activity in Uganda’s private sector contracted in September for the second straight month to the lowest level since April, although it was above the 50.0 reading which shows that activity is unchanged, according to the latest Stanbic Bank Uganda purchasing managers’ index.
The PMI reading fell to 55.7 in September from 57.5 in August. Still, September rounded off the strongest quarter of business activity in the survey’s 45-month history, with an average reading of 57.1.
“Private sector activity remains solid at the end of the third quarter of 2019,” said Benoni Okwenje, the fixed income manager at Stanbic Bank Uganda. “Despite the PMI declining… in August, overall activity remains robust. Domestic demand continues to improve, partially driven by private sector credit growth over the last year.”
The latest Bank of Uganda figures show that total outstanding loans at commercial banks increased by 12% year on year in July to Shs14.2 trillion, up from 10.7% the previous month. The solid rise in private sector credit growth over the past year was supported by an improvement in economic activity, an easy monetary policy, and an improvement in loan quality reflected by lower nonperforming loans, according to the central bank’s monetary policy report for August.
Business activity in the month was largely driven by new orders, a result of new customers and successful marketing efforts, according to IHS Markit. The growth in new orders, in turn, saw companies increase their staffing levels so they could deliver to customers on time.
Input prices, however, also continued rising, leading to a rise in selling prices for the 40th straight month. Purchasing managers reported higher costs for electricity, cement, food products, and stationery. As a result, private sector companies raised the prices of their products and services.
Over 74% of the panellists said they were confident that output in the private sector will rise over the coming year, mainly due to new order growth and business expansion plans.
The PMI survey is produced by IHS Markit, the international research firm. It is compiled from responses to questionnaires sent to purchasing managers in a panel of around 400 private sector companies. The panel is arranged by detailed sector and company workforce size, based on contributions to GDP.