July slow due to lockdown-Uganda

The recently concluded 42-day national lockdown, intended to reduce the spread of a second wave of the Covid-19 pandemic across Uganda, has added to the continued economic slowdown.

The Stanbic Purchasing Managers’ Index (PMI) slipped to 34.6 in July from 34.9 recorded in June. This is the second consecutive decline in trading conditions since the lockdown went into effect on June 18.

Main conclusions

  • Second consecutive drop in production
  • Input costs fall for the first time in 14 months
  • Businesses confident in rebound from lockdown

The latest reading is well below the series average of 52.5. Production, new orders and employment all fell for the second consecutive month.

Ronald Muyanja, head of trade at Stanbic Bank Uganda, said that “a reduction in prices has been seen for the first time in 14 months.

Companies lowered their selling prices in a context of weak demand. Although on a more positive note, companies were optimistic that activity would resume once the foreclosure restrictions were lifted.

Sponsored by Stanbic Bank, the monthly survey involving some 400 respondents is produced by IHS Markit and has been conducted since June 2016. It covers the sectors of agriculture, industry, construction, wholesale / trade. retail and services.

The main figure derived from the survey is the Purchasing Managers Index (PMI) which gives an indication of operating conditions in Uganda.

This is a composite index, calculated as a weighted average of five individual sub-components: new orders (30%), production (25%), employment (20%), supplier delivery times (15%) and purchasing stocks (ten%).

Readings above 50.0 signal an improvement in trading conditions from the previous month, while readings below 50.0 indicate deterioration.

Muyanja added: “The recent Covid-19 lockdown has resulted in further cuts in production and new orders, with more than half of all respondents reporting decreases in each case.

Production fell in all categories of agriculture, construction, industry, services and wholesale / retail. Along with the drop in workload, companies also reduced their employment and purchasing activity for the second month in a row.

Although transportation costs have increased, panelists said this was offset by lower utility charges, lower purchase prices and lower personnel costs resulting in lower overall input costs.

Faced with falling input costs and weak demand, companies lowered their selling prices for the second consecutive month that this was the case. Agriculture was the only sector to record an increase in costs.

Despite the drop in prices, the foreclosure further resulted in a reduction in buying activity in July, the second consecutive month in which this has been the case. Declines in input purchases were recorded in each of the sectors monitored.

Exports also declined in July, continuing a trend that has lasted for the past 11 months. Anecdotal evidence suggests that reductions in business activity have affected the ability of companies to export their products.

Data for July indicated a second successive increase in supplier delivery times. Market analysts have largely linked the delivery delays to the effects of the lockdown, with travel restrictions and roadblocks being mentioned.

However, going forward, companies were optimistic that business would pick up once the lockdown restrictions were lifted.

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