Uganda Economic Forecast

Following a projected year-on-year GDP growth pickup in Q2, available data suggests the economy could be gaining further traction in Q3; in July, activity expanded 6.9% year on year, the strongest increase since June 2021. Additionally, underlying momentum remained robust, as activity rose at June’s 0.4% month on month in July. Inflation receded further in July and August—when the Bank of Uganda unexpectedly lowered its policy rate by 50 basis points—the first cut since June 2021. These developments will have supported consumers’ budgets and private spending in turn. Less positively, the private-sector PMI showed business conditions improved at a softer pace in July–August than in Q2. In other news, on 8 September, Fitch Ratings affirmed the country’s ‘B’ rating with a negative outlook, citing challenges to securing external financing due to human rights concerns.

Inflation receded to an 18-month low of 3.5% in August (July: 3.9%) on softer price increases for food and a steeper fall in transport prices. This year, inflation will decelerate from 2022 but will remain above the Bank of Uganda’s 5.0% target on strong activity, lower interest rates and a weaker shilling. Stronger-than-expected currency depreciation is an upside risk.