Dry spell dampens economic activity to push down March PMI

April 4, 2019 in Business, Companies, Markets, Trade & Industry by Editor

Okwenje said Ugandan companies have raised purchasing activity in advance of expected output growth in coming months.

April 4—The continued dry spell into March hurt farming which in turn dampened general business activity and pushed down the Stanbic Purchasing Managers Index (PMI) from 54.4 in February to 51.7 in March. However experts say the seasonal rains are expected before the of end the month.

Now in its 26th month, the PMI is a monthly survey, sponsored by Stanbic Bank Uganda and produced by IHS Markit. It covers the agriculture, industry, construction, wholesale and retail and services sectors.

Jibran Qureishi, the Regional Economist East Africa at Stanbic Bank said early this week, “The decline in the PMI, similar to last month is mainly due to weaker agricultural productivity owing to the dry weather conditions. That said, delayed payments both from the public and private sector continue to hold back domestic demand. In any case, activity should start to pick up as the long rains potentially come through in April.”

The PMI provides an early indication of operating conditions in Uganda.  It is composite index, calculated as a weighted average of five individual sub-components: New Orders (30 pc), Output (25 pc), Employment (20 pc), Suppliers’ Delivery Times (15 pc) and Stocks of Purchases (10 pc). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 reflect deterioration.

However, some panelists surveyed reported particularly strong growth of construction activity. Alongside construction, output also rose in the industry, service and wholesale & retail sectors. Only agriculture saw a drop in activity during the month.

March PMI findings show rising customer requests led to another monthly increase in new orders, although some panelists reported signs of demand having softened in the latest survey period. Companies responded to greater output requirements by taking on extra staff. Higher operating capacity and reports of improved workforce efficiency contributed to a further depletion.

Benoni Okwenje, the Stanbic Fixed Income Manager said, “We are optimistic economic activity is going to continue picking up as survey findings indicated Ugandan companies raised purchasing activity in advance of expected output growth in coming months. However, the level of inventories decreased for the first time in a year as inputs were used to support current increases in business activity.”

Overall input costs rose on the back of higher electricity and water bills alongside rises in both purchase and staff costs. Where purchase prices increased, respondents noted higher costs for materials such as food products and stationery, as well as rising land prices.

Firms responded to higher cost burdens by raising their output prices accordingly. Charges have increased throughout the 34 months of data collection so far, with only industry lowering selling prices in March.