Economic activity drops for first time since September
There has been a marked slowdown in economic activity due to disruptions in supply chains for some raw materials such as sunflower seeds and palm oil and the impact of increased fuel prices. Photo | Edgar R Batte
What you need to know:
- In details contained in the March performance of the economy report, the Ministry of Finance said the Composite Index of Economic Activity, which measures movement of business activities, declined by 0.05 percent from 147.24 in January to 147.16 in February, signaling a slowdown in economic activity in some sectors of the economy.
Economic activity declined marginally for the first time since September 2021 due to supply shocks for raw materials such as sunflower seeds and palm oil and the impact of increased fuel prices, according to a report by the Ministry of Finance.
In details contained in the March performance of the economy report, the Ministry of Finance said the Composite Index of Economic Activity, which measures movement of business activities, declined by 0.05 percent from 147.24 in January to 147.16 in February, signaling a slowdown in economic activity in some sectors of the economy.
“This was the first time there has been a decline in the index since September 2021,” the report said, noting that supply shocks and rising fuel prices experienced since December has been exacerbated by geo-political tensions in Europe that have distorted global trade patterns, increasing inflationary pressures in developed economies and crude oil prices.
The shocks and increase in fuel prices have been sustained since March, which further threatens recovery and growth obtained as a result of full reopening of the economy since January.
Fuel prices have been rising since December, due in part to a strike by truck drivers over Covid-19 requirement and shock on supply chains.
In March, Uganda Bureau of Statistics indicated that fuel prices had increased by more than 36 percent since December, which is now estimated to have risen to above 40 percent.
Government, early this month turned to Kenya, seeking for an increase in allocated monthly petroleum import quotas to address current shortages.
In an April 11 letter Energy Ministry Permanent Secretary Pauline Irene Batebe had asked her counterpart in Kenya - Energy Principal Secretary Andrew Kamau - to increase fixed allocation of 110,660 cubic metres of petrol and 110,400 cubic metres of diesel transported through Kenya to deal with fresh demand, partly driven by reopening of the economy.
However, Mr Kamau last Thursday told Daily Monitor he had not received the letter, noting consultations would be conducted as soon as contents of the letter are understood.
In the letter, Ms Batebe had also indicated that Uganda wants a guarantee of a monthly provision of 12,000 cubic metres of aviation fuel.
Fuel prices, which now average at Shs5,250 for petrol present the biggest challenge and are expected to exacerbate inflationary pressures, given that a number of goods and services have been increasing, citing volatility in pump prices.
Public transporters have already indicated they will increase transport fares by between Shs500 for short and Shs5,000 for longer routes.
The increments have already been endorsed by the Ministry of Works and Transports, which is expected to create more inflationary pressures.
In its report, the Ministry of Finance also indicated that the Purchasing Managers’ Index, which interviews top executives and purchasing managers on business activity, had in March declined since recovering in September.
During March the report indicates the index scored 51.9, which was lower than the 55.7 points scored in February.
This, the report noted, was due to firms experiencing a drop in new export orders and a reduction in new business from abroad during the month.
However, the index remained above the 50 score, an indication of sustained growth, despite a number of challenges.
The index also reported an increase in consumer demand, which had during the period helped firms to secure new domestic orders and expand their business activity during the month.
An increase in employment and purchasing activity were also recorded in response to higher new orders while output increased across industry, services and wholesale and retail sectors.
However, the index reported higher prices for final products, which was attributed to an increase in input purchase costs particularly fuel, cement, transportation and utilities thus forcing an increase in selling prices for the seventh month running.
Continued growth
In its report, the Ministry of Finance also indicated that the Purchasing Managers’ Index, which interviews top executives and purchasing managers on business activity, had in March declined since recovering in September.
During March, the report indicated the index scored 51.9 points, which was lower than the 55.7 scored in February.
This, the report noted, was due to firms reporting a drop in new export orders and a reduction in new business from abroad during March.
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However, the index remained above the 50 score, an indication of sustained growth, despite a number of challenges.
The index also reported an increase in consumer demand and employment.
