Private sector optimistic as business conditions remain favourable

December 16, 2024 in Business by Editor

Legilisho said notwithstanding the dip in employment, firms remain positive about the economic outlook due to planned investment as well as expectations of strong consumer demand conditions going into the coming year.

The mood in Uganda’s private sector remains upbeat with the monthly Stanbic Purchasing Managers’ Index (PMI) jumping to 55.7 during November from the 52.9 recorded in October. Readings above 50.0 mean a positive outlook.

Christopher Legilisho, Economist at Stanbic Bank said, “The Stanbic Bank Uganda PMI data for November revealed a vibrant private sector growing in optimism about both current and future economic conditions. The PMI rose to 55.7 which is an extension in business conditions for an eighth consecutive month due to strong, sustained customer demand resulting in an expansion in output and new orders despite a dip in employment.”

He said the uptick  in new orders growth was broad-based, reflecting  the acquisition of new clients and an improvement  in consumer purchasing power. Firms ramped up  purchasing activity and inventories to accommodate  strong demand.

The Stanbic PMI is a weighted average of  the following five indices: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery  Times (15%) and Stocks of Purchases (10%). The sectors  covered by the survey compiled by S&P Global, include agriculture, mining, manufacturing, construction, wholesale, retail  and services.

At the sector level, expansions in business activity and new orders were recorded across all five monitored segments. Greater output and new orders supported overall growth, with demand conditions reportedly strengthening. In response to increased new business, and hopes of future expansions in client demand, firms stepped up their input buying. Despite a rise in new sales, companies were able  to deplete backlogs of work further, leading to the first cut  in staffing numbers since March 2023.

Meanwhile, total operating expenses increased again  amid hikes in purchase and staff costs. At the same time,  businesses were able to raise selling prices for the third  month.

Legilisho said, “Employment levels fell in November across all surveyed  sectors, implying firms targeted cost containment  amid reduced work backlogs. Input and output price  pressures increased due to high utility and energy  bills. Further, purchase prices increased due to higher costs for construction materials, food, and toiletries.”

He said, “Notwithstanding the dip in employment, firms remain  positive about the economic outlook due to planned  investment as well as expectations of strong consumer  demand conditions over the coming year.”

On the price front, total input costs rose further, as both  purchase and staff costs increased again. Higher utility  and material prices were commonly highlighted as the  driving factors behind overall cost inflation.

In line with greater cost burdens, Ugandan businesses  raised their selling prices for the third month running in  November.  Although all monitored sectors registered higher overall  input costs, only construction companies did not raise.

Finally, input buying grew again midway through the  fourth quarter. Increased purchasing activity was  facilitated by another improvement in suppliers’ delivery  times. Consequently, Ugandan companies were able to  build desired safety stocks amid hopes of further upturns  in new orders in the coming months.