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Private sector growth slows slightly in December but remains strong

The Stanbic Purchasing Managers’ Index (PMI), which gauges private sector performance, declined to 53.1 in December, down from 55.7 in November, signalling a slight easing in the pace of growth.
Christopher Legilisho
Christopher Legilisho

The Stanbic Purchasing Managers’ Index (PMI), which gauges private sector performance, declined to 53.1 in December, down from 55.7 in November, signalling a slight easing in the pace of growth.

Christopher Legilisho, an economist at Stanbic Bank, commented, "The Stanbic Bank Uganda PMI data for December highlights robust private sector growth, with businesses maintaining optimism about current and future economic conditions.

"Despite a second consecutive month of declining employment, private sector business conditions expanded for the ninth month in a row, driven by strong and sustained customer demand, which boosted output and new orders."

He noted that the growth in new orders spanned all sectors, fuelled by the acquisition of new clients and improved consumer purchasing power. This surge in demand led to an increase in backlogs, prompting firms to step up purchasing activity and expand inventories.

The Stanbic PMI, compiled by S&P Global, is based on responses from purchasing managers at approximately 400 private sector firms across agriculture, mining, manufacturing, construction, wholesale, retail, and services.

A PMI reading above 50.0 indicates improved business conditions compared to the previous month, while a reading below 50.0 suggests a deterioration. The index is a weighted average of five components: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%), and Stocks of Purchases (10%).

Key drivers of growth

December saw continued growth in both output and new orders, marking the ninth consecutive month of expansion. Businesses reported success in acquiring new customers, which drove higher order volumes and output. All five sectors surveyed experienced increased business activity during the month.

Looking ahead, businesses remain optimistic about 2025, with expectations of further growth in customer numbers and competitive pricing strategies supporting confidence in future business activity.

Price pressures and cost management

Legilisho highlighted ongoing price pressures: "Input and output price pressures persisted due to elevated utility costs and increased purchase prices for materials such as timber, foodstuffs, and paper products.

"However, staffing costs were muted, as wage increases were largely offset by reduced employment levels. Compared to the price hikes of the past two years, these pressures have moderated, suggesting a plausible easing of monetary policy in the near term."

Challenges in employment

Despite strong growth in orders and output, staffing levels fell for the second consecutive month. Companies frequently opted not to replace departing employees, leading to a reduction in workforce numbers. However, the industrial sector bucked this trend, reporting a rise in employment. The drop in staffing amid rising orders caused backlogs of work to increase for the first time in four months.

Purchasing and supply chain activity

Purchasing activity rose in December, with firms boosting input stocks to meet strong demand. Supplier delivery times improved, aided by heightened competition among vendors, which encouraged faster deliveries compared to November.

However, higher input costs for materials such as foodstuffs, paper products, and timber continued to exert pressure.

Sectoral variations in pricing

While output prices increased for the fourth consecutive month, the trends varied by sector. Charges rose in agriculture, industry, and services but declined in construction and wholesale and retail.

Stable staff costs and improved customer demand enabled businesses to pass on higher input costs to clients.

In summary, the December PMI data underscores strong private sector growth, underpinned by sustained demand and optimism for 2025. However, challenges such as employment declines and price pressures warrant close monitoring in the months ahead.

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