Uganda’s business index falls below 50.0 threshold as new orders decline

February 5, 2025 in Business by Editor

Firms cut employment for the third month running in January, amid lower new orders and renewed evidence of spare capacity. Companies indicated a drop in backlogs of work, following an increase in December.

A decline in new orders has for the first since March 2024, pushed the Stanbic Purchasing Managers’ Index (PMI) below 50.0 reflecting subdued business conditions. The headline Stanbic PMI for January was 49.5, down from the 53.1 recorded in December.

Christopher Legilisho, Economist at Stanbic Bank said, “Surprisingly, the Ugandan Purchasing Managers’ Index (PMI) eased in January as new orders and output reflected subdued consumer demand. The private sector may well have lost momentum in January. Further, backlogs declined due to less consumer demand.”

The Stanbic PMI is compiled by S&P Global from responses to monthly questionnaires sent to purchasing managers. The sectors covered by the survey include agriculture, mining, manufacturing, construction, wholesale, retail and services.

The 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%). Readings of 50.0 and above indicate a positive outlook while those below reflect some concerns.

Legilisho said, “However, quantities purchased increased, and inventories and supplier delivery times improved due to optimism about future output and efficiency gains by vendors. Therefore, the retreat in new orders and output may prove temporary. Firms reported an increase in input costs due to higher utility bills as well as a rise in purchase prices for staple products for instance, foodstuff, stationery, cement and toiletries. Staff costs rose, with a slight uptick in the manufacturing, wholesale and retail segments.”

The latest fall ended a nine-month sequence of growth, with panelists often highlighting weak client demand and reduced purchasing power at customers. Lower new orders subsequently dampened business activity levels, which were broadly unchanged on the month in January.

Unlike the fall in new business, which was largely centred on the service sector, the decline in output was broad-based by monitored segment. Average input prices continued to increase at the start of 2025, following higher reported purchase and staff costs. Survey respondents noted that utility and raw material costs ticked up, with some also mentioning increased overtime payments to staff.

Legilisho said, “Firms reported an increase in input costs due to higher utility bills as well as a rise in purchase prices for staple products for instance, foodstuff, stationery, cement and toiletries. Staff costs rose, with a slight uptick in the manufacturing, wholesale and retail segments. Output prices too increased as firms passed on higher input and purchase prices to consumers. This implies a slight rise in inflationary pressures in January compared to the case in December, aligning with the inflation print that rose to 3.6% y/y. The private sector is upbeat about the business outlook for the next 12 months.”

Ugandan businesses raised their selling prices, in response, with output charges increasing for the fifth month running. Although the uptick in total input prices was broad-based by sector, construction registered a reduction in output charges in January. Firms cut employment for the third month running in January, amid lower new orders and renewed evidence of spare capacity. Companies indicated a drop in backlogs of work, following an increase in December.

Wage bills at Ugandan private sector firms rose for the eleventh successive month at the start of the year. The increase in staff costs was attributed by companies to greater overtime and cost-of- living payments, despite a fall in total employment. At the sector level, higher wages were seen in the manufacturing and wholesale & retail segments.

Nonetheless, private sector firms were upbeat in their expectations regarding the outlook for output over the coming year. Business confidence was positive in all sectors amid hopes of stronger demand conditions in the coming months.