In the three months leading up to May, Uganda witnessed a notable surge in economic growth driven by increased consumption, exports, and investments. This period marked a significant uptick in economic activity, according to the June 24 state of the economy report.
The State of the Economy report comprehensively details economic trends observed through to May 2024, highlighting significant developments and projecting future prospects. Central to its findings are macroeconomic indicators and pertinent policy implications shaping Uganda’s economic
The report highlights that the demand side of the economy saw notable improvements. Household consumption accelerated, reflecting increased spending by Ugandan families. Additionally, net exports rose, indicating that the country exported more goods and services than it imported during this period. Public investments also played a crucial role, with government spending on infrastructure and other public projects providing a significant boost.
Demand Side Dynamics
The report highlights an impressive recovery in household consumption, which grew by 8.2 percent, “a marked improvement from the 3.6 percent observed during the inflation-stricken FY2022/23.” The easing of consumer price inflation in FY2023/24 increased household real incomes, enabling more consumption. “Consumer pessimism reduced during the period with the Consumer Confidence Index recovering from an average reading of 37.6 in FY2022/23 to an average of 42.1 in FY2023/24,” the report noted.
Resilience in Global Economy
Uganda’s economic growth also benefited from the resilience of the global economy amidst tight financial conditions and geopolitical tensions. This resilience kept external demand for Uganda’s goods and services strong. Consequently, the contribution to growth from net exports of goods and services significantly increased. A 35.5 percent volume increase in exports of goods and services marked a major rebound, overshadowing the modest 7 percent growth in real imports of goods and services.
Public Investment Surge
Investment demand from the public sector was another major growth driver in FY2023/24. Public investments, particularly in buildings and other structures, grew by 30 percent, reversing the negative or stagnant growth observed in previous years. However, this surge in public spending, largely financed from domestic resources, potentially crowded out the private sector, whose investment demand declined by 0.6 percent.
Economic Outlook
Economic growth is projected to be between 6 and 6.5 percent in FY2024/25, with expectations to rise above 7 percent in subsequent years, driven by investments in the extractive industry and government programs aimed at boosting productivity. However, the growth outlook faces significant downside risks. “Uncertainty about the global economic situation and a stronger shilling depreciation could weigh on domestic demand,” the report warns. Private sector credit growth could weaken further due to tighter domestic financing conditions, and external factors such as a weaker global economy and escalating geopolitical conflicts could disrupt supply chains, increase freight costs, and reduce export demand.
Inflation Trends
Inflation has remained muted and below the 5 percent target since May 2023, thanks to tight monetary conditions, favorable domestic food supplies, and declining imported inflation due to lower global commodity prices and relative stability of the shilling. However, inflation edged up recently, with annual headline and core inflation reaching 3.6 percent and 3.7 percent in May 2024, respectively. This rise was driven by increased costs in healthcare, education, and transportation services, as well as higher prices for solid and liquid fuels.
The report points out that the recent increases in inflation may not be prolonged. “Most components of the consumer basket, save for food crops and related items, are experiencing declining inflation,” it notes. Nonetheless, services inflation rose to 6.2 percent in May 2024 from its 1.6 percent low in September 2023, with inflation for health and education services increasing 4.1-fold and 1.7-fold to 7.4 percent and 10.1 percent, respectively, by May 2024.
In summary, Uganda’s economy is experiencing significant growth driven by increased consumption, exports, and public investments. However, challenges such as potential global economic uncertainty and inflationary pressures remain, necessitating careful economic management and policy adjustments.
