A recent report by BMI, a Fitch Solutions company, has predicted a positive trajectory for Uganda’s economy. The report projects a slight upturn in real GDP, with expectations of a 6.5% growth rate in 2023, up from an estimated 6.3% in 2022.
This prediction is based on increasing large infrastructure projects and strong fixed investment growth. Demand for imports, however, slightly balances this.
According to BMI research, Uganda’s growth slowed down in the final quarter of 2022. However, a recovery is expected in the upcoming quarters as foreign investment inflows and easing pricing pressures support the domestic economy.
The research emphasizes positive trends for the first quarter of 2023, which point to a growing economy. The improving business climate is indicated by Uganda’s purchasing managers index, which between January and March averaged 52.5. In Q1 2023, the Bank of Uganda’s overall index of economic activity increased by 4.9% compared to the previous year, indicating strong growth momentum.
The fixed investment will continue to be a key component of economic progress in the upcoming quarters, as seen by the business optimism index, which specifically in the construction industry, reached 53.1.
The expansion of Uganda’s oil sector is a key economic growth driver. Significant investments have been drawn to well-known projects including the East African Crude Oil Pipeline and the Lake Albert Oil Project. By June 2023, a final investment decision is anticipated for an oil refining plant in the Hoima District.
Following a 1.5% decline in 2022, these innovations are expected to help the construction sector rise by an astounding 6.3% in 2023. According to the analysis, fixed investment would increase by 9.1% in 2023, contributing a significant 2.4 percentage points to the economy as a whole.
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The rise in construction projects, likewise, might make it difficult to keep a positive trade balance. Due to the progress of oil-related projects, import requests for machinery, equipment, and vehicles have significantly increased. Additionally, the demand for imported consumer products will be supported by strong private consumption, which is predicted to reach 6.5% in 2023.
The research forecasts an increased import growth rate of 7.8% as a result, while exports, notably coffee, may experience difficulties due to a slower worldwide market.
This study expects a small slowdown in economic growth to 6.2% by 2024. The main cause of this is the ongoing demand for consumer and capital goods, which could have an impact on net exports.
Although private consumption growth is likely to continue strong at 6.1% and contribute 5.1 percentage points to headline growth, lowering inflation and anticipated monetary actions are expected to assist it.
Despite the positive forecast for Uganda’s economy, the research also points out several dangers. A change to growth predictions may be necessary due to the impact that continuous price pressures will have on private consumption growth.
In addition, the Anti-Homosexuality Act, which has drawn criticism throughout the world, may lead to a decrease in foreign aid, which could have an effect on government consumption.
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Overall, BMI’s assessment presents a positive outlook for Uganda’s economy, powered by greater infrastructure spending and a strong dedication to strengthening core industries. The anticipated expansion offers considerable potential for the commercial environment of the nation and lays the foundation for long-term prosperity.
