The pace of growth is anticipated to slow in H2 2022 as households navigate a higher inflation and lending rates environment.

This expansion follows a moderation in import taxes, according to the SSA Macroeconomics Research Instant Insights Report released by Absa Group dated 13th October.

According to the report, all major sectors showed improved growth from the previous quarter, but the downscaling in taxes and subsidies overshadowed these performances.

“Taxes & subsidies rose by 0.7% in the second quarter compared with the 21.8% increase in the first quarter of 2022 and the 48.4% surge in the second quarter of the previous year (Q2, 2021). Uganda Bureau of Statistics (UBOS) provided no detailed explanation but did attribute the muted rise to import duties. And while there are likely to be other factors at play such as volume effects, the strong base effects also contributed to the marked slowdown in the pace of growth in import taxes,” said Ridle Markus, Absa Corporate and Investment Banking Macro Economist, Sub-Saharan Africa.

Data from the report indicates a 9% growth in agricultural production during the second quarter of 2022, attributed to an increase in food crop growing activities.

Output in the services sector grew 2.6% in Q2, up from 1.7% in Q1 as information & communication, finance, administrative & support services, public administration, and health, all delivered improved performances from the previous quarter.

“After averaging growth of 5% in the first half of 2022, we expect the pace of growth to slow in the second half as households navigate a higher inflation and lending rates environment. We expect inflation to rise further, peaking only in the first quarter of 2023, while further policy rate hikes of at least another 150bp remain likely, in our view. Households will have to navigate a high inflation and lending rates environment, which will impact their purchasing power and increase the cost of credit. Sentiment indicators suggest that economic activity is likely to have slowed in the third quarter, with the Business Tendency Index declining in the first two months of Q3 to 52.8 in August from 58.4 in June as businesses became less optimistic about the economic outlook,” Ridle said.

Headline inflation accelerated to 10.0% year on year in September, while core inflation drifted further away from the central bank’s 5% target, surging to 8.1%. The Bank of Uganda has thus raised the policy rate by a cumulative 350bp year-to-date to corral inflationary pressures.