COVID-19 Lockdown Causes Decline In Business Conditions – Stanbic PMI

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BY BANKERS REPORTER

The imposition of a 42-day lockdown in Uganda to try and slow the spread of the COVID-19 pandemic impacted negatively on business conditions in June.

Falls were seen in output, new orders and employment, while companies lowered their selling prices to try and attract business.

The headline PMI dropped to 34.9 in June from 56.5 in May. The reading signalled a deterioration in business conditions for the first time in five months, and was below the series average of 52.8.

The COVID-19 lockdown impacted a range of indicators across the private sector. Falling customer numbers meant a lack of new orders, while business activity also declined. Reductions in output and new orders were seen across each of the five sectors covered by the survey.

With workloads down amid the lockdown, companies scaled back their employment and purchasing activity, in both cases for the first time in five months. The reduction in employment meant that staff costs also fell. Restrictions on travel meanwhile resulted in longer suppliers’ delivery times. Lower input buying and delays in the delivery of materials fed through to a reduction in inventories.

 Companies lowered their selling prices as part of efforts to attract customers. This was despite a further increase in purchase costs, which largely reflected higher raw material prices amid product shortages. Construction and industry each saw purchase costs increase, while falls were recorded in the agriculture, services and wholesale & retail sectors.

There were hopes that business activity will rebound once the lockdown measures are lifted, supporting optimism in the 12-month outlook for output. That said, some firms were cautious amid worries that the impact of the COVID-19 pandemic will be extended.

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Ferishka Bharuth, Economist – Africa Regions at Stanbic Bank commented: “Private sector business conditions deteriorated sharply in June, as the government implemented stricter lockdown restrictions, with the headline PMI slipping to 34.9 from 56.5 in May.

The imposition of a 42-day lockdown in Uganda to try and slow the spread of the COVID-19 pandemic impacted negatively on business conditions in June.
Security forces forced traders to close shops and return home in Kampala. President Museveni directed for a 42-day total lockdown.

“The lockdown underpinned declines in the new orders, output, and employment sub-components of PMI. Despite an increase in purchase costs, which largely captured higher raw material prices due to global shortages, companies lowered their selling prices to attract customers.

“However, the impact of the lockdown on the headline PMI is likely to be transitory, and fade as lockdown measures are eased. That said, there is the risk that some lockdown restrictions may be extended, which could delay the rebound in economic activity amidst the recent spike in Covid-19 cases.”


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