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Consumer demand fell in January, leading to a decline in the Purchasing Managers’ Index (PMI) to 49.5 from 53.1 in December. A reading below 50.0 signals deteriorating private sector conditions.
Christopher Legilisho, an economist at Stanbic Bank, said, “Surprisingly, the Ugandan PMI eased in January as new orders and output reflected subdued consumer demand. The private sector may well have lost momentum. Further, backlogs declined due to less consumer demand.”
The PMI, compiled by S&P Global, surveys purchasing managers across key sectors, including agriculture, mining, manufacturing, construction, wholesale, retail, and services.
It is a weighted index based on five components: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%), and Stocks of Purchases (10%).
According to the latest survey, a decline in new orders dampened business activity, keeping it broadly unchanged in January. While the drop in new business was mainly in the service sector, the fall in output was more widespread across monitored industries.
Legilisho noted, “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 rising input costs, driven by higher utility bills and increased purchase prices for key goods such as foodstuffs, stationery, cement, and toiletries. Staff costs also rose, particularly in the manufacturing, wholesale, and retail sectors.
As a result, businesses passed on these costs to consumers, leading to higher output prices. This suggests a slight increase in inflationary pressures, aligning with the inflation rate rising to 3.6% year-on-year.
At the start of 2025, average input prices continued to rise due to higher purchase and staff costs. Respondents noted increased utility and raw material expenses, with some citing higher overtime payments.
In response, Ugandan businesses raised their selling prices for the fifth consecutive month. While input price hikes were broad-based, the construction sector saw a reduction in output charges in January.
Meanwhile, Ugandan private sector firms cut jobs for the third straight month due to lower new orders and evidence of spare capacity. Companies also reported a decline in work backlogs, following an increase in December.
Despite these challenges, businesses remained optimistic about the year ahead, with expectations of improved demand conditions.
Additionally, firms continued to increase input purchases in January, marking the fourteenth consecutive month of vendor performance improvements. This supported efforts to build safety stocks, leading to further inventory growth.