What you need to know:
- The survey, which measures performance of the economy on a monthly basis, indicates that Purchasing Managers’ Index (PMI) rose to a score of 52 in December last year up from 50.9 in November.
The businesses environment showed further improvement in December, according to a survey by Stanbic Bank.
The survey, which measures performance of the economy through interviewing business executives and procurement manager on a number of parameters, indicates that Purchasing Managers’ Index (PMI) rose to a score of 52 in December last year up from 50.9 in November.
The Index, which is based on input, output and such other related costs, was for the second month in a row above the 50 score, above which signals stable or growing business activity.
The survey covers about 400 private sector companies and is produced by S&P Global. It has been conducted since June 2016 and covers agriculture, industry, construction, wholesale and retail and service sectors.
The improvements, Stanbic noted, were due to growth in customer demand, which fed through to increase in new orders and output.
In both cases, expansions were registered for the fifth month running.
Ms Mulalo Madula, the Standard Bank economist, said during December private sector activity picked up again, extending the current growth sequence to five months.
During the period, production increased in agriculture, industry and services but decreases were registered in construction and wholesale & retail.
“Price pressures remain high, largely due to the continued pass-through of electricity, fuel, and raw materials costs,” she said, noting that despite improvement in the business conditions suppliers’ delivery time increased in December, anecdotally associated with heavy rains and high prices.
“We may see some positive signs, such as easing supply chain tensions making us less anxious than we were a few months ago when concerns about energy prices peaked,” she added.
The survey indicated that business managers remain optimistic that the improvement in the index will encourage firms to increase planned investments and contribute to spending on newly produced goods and services.
However, business managers noted that weaker external demand and lagged slowdown in domestic demand owing to monetary tightening pose downside risks.
During the period, Stanbic noted companies again expanded their operating capacity in response to new orders, which saw an increase in employment for the third month running.
However, companies continued to record higher input costs.
“Purchasing activity expanded for the second month running in response to higher new orders. Stocks of inputs were also up for the second month in a row, due in part to positive expectations for ,” the index noted.
Increase in production
The Index also noted that suppliers’ delivery times lengthened due to delays linked to heavy rains and price pressures while vendor performance deteriorated in five of the past six months.
Stanbic also noted that 74 percent of respondents expect production to increase during 2023 despite existing shocks and threats.
Performance of government debt
Meanwhile earnings on short-term govt increased in the period ended December, according to the Bank of Uganda State of Economy Report.
However, the report noted while earnings for short term debt increased, the curve for that of long-term debt flattened.
The movements, the report indicates, was due to tightening of the funding conditions and government preference to avoid locking in high interest rates for a longer time.
For instance, the report indicates, earnings or interest for the 91-day, 182- day and 364-day treasury bills rose 11.1 percent, 13.1 percent, and 15 percent, respectively.
The highest increment was, however, observed on the 364-day treasury bills.
However, on the other hand, the yield curve for 15-year bills flattened.
“Government preferred to borrow more at the short end with new sales on treasury bills exceeding sales of treasury bonds during the quarter,” the report indicated.
During the period, secondary market for treasury bills rose reflecting the impact of the tight financial conditions and dynamics in the primary market.
Treasury bill yields sharply rose most, especially on the 364-day tenor, with increments ranging between 3.2 to 5.4 percentage points relative to the quarter to July 2022.
Similarly, Treasury bond yields also increased across the spectrum with increments ranging between 140 to 330 basis points.
Beyond Uganda, the Central Bank noted the global financial conditions had tightened sharply following aggressive central bank actions and communications to tame persistent inflationary pressures.
Tighter financial conditions and fears of global recession are often associated with negative consequences for emerging markets and developing economies’ capital flows.