Central Bank cuts economic growth forecast by 0.5%

Cargo containers assembled at a depot in Kampala. Uganda has registered a slight decline in economic activity for the month of September. FILE PHOTO

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Factors. Economic slowdown in major emerging economies has played a major role in the projection

Global economic slowdown, especially in the Euro- zone, and major emerging economies has forced Bank of Uganda to cut Uganda’s economic growth forecast by 0.5 per cent.

The slowdown has seen Uganda register reduced commodity exports in the international market and Foreign Direct Investment inflows in the country.

Presenting the Monetary Policy Statement for the month of December 2014 and January 2015, last Friday, Bank of Uganda Governor Emmanuel Tumusiime-Mutebile said Real GDP is projected to grow by 5.0 to 5.5 per cent in 2014/15 down from an earlier projection of 6 per cent at time budget reading in June.

Mr Mutebile said though the growth in 2014/15 is being weakened by the global economic environment, the GDP growth rate is higher than growth estimates of 2013/14 which was estimated at 4.5 per cent as indicated in the rebased GDP recently released by the Uganda Bureau of Statistics.

“Growth in 2014/15 will be supported by higher public and private investment and a recovery of domestic demand. However, the weaknesses in the global economy could undermine growth prospects in Uganda, in particular through their impact on demand for Uganda’s exports and in ward flows for foreign direct investment,” he explained.

The BoU’s macroeconomic forecasts indicate that core inflation and real GDP will trend close to their targets over the medium term.

Mr Mutebile said as such, BoU had to maintain the Central Bank Rate (CBR) at 11.0 per cent, until the next Monetary Policy meeting which is scheduled for February 2015.

Inflation expected to rise
Uganda’s inflation rate is expected to rise in the near future; BoU Governor Emmanuel Tumusiime-Mutebile said over the next three months, annual core inflation is forecast to be in the range of 2-4 per cent, before rising to about 5 per cent over the next 12 months, which is in line with the BoU’s medium-term inflation target.

“Core inflation is expected to rise because of increased domestic demand over the forecast period and the pass-through of nominal depreciation of the exchange rate to domestic prices, which is not yet complete,” he said.

However, he Governor recognised that there are upside risks to inflation over the medium-term, which include the risk that domestic demand may be stronger than currently forecast.

“In addition, there may be further exchange rate depreciation pressures and food prices may rise by more than expected if harvests are poor next year,” he said.