Uganda’s economy is showing clear signs of strengthening as 2026 unfolds, with key indicators pointing to rising business activity, resilient demand, and stable inflation. However, beneath this positive momentum, pressures from a weakening currency and a widening trade deficit highlight a more complex outlook.
High-frequency data signals continued expansion. The Composite Index of Economic Activity (CIEA) rose by 0.6 percent between January and February 2026 to 185.6. This steady increase reflects improved export performance, growing aggregate demand, contained inflation, and sustained expansion in private sector credit in the months leading up to March.
Business activity on the ground mirrors this trend. The Purchasing Managers’ Index (PMI) edged up to 54.3 in March from 54.2 in February, remaining comfortably above the 50 threshold that signals growth. The increase was driven by higher output and new orders, prompting firms to purchase more raw materials and expand their workforce. Rising employment levels, in particular, point to growing business confidence in the near-term outlook.
Investor sentiment also remains strong. The Business Tendency Index (BTI) registered 57.83 in March, reinforcing optimism among firms—especially in the agriculture and financial sectors. This suggests that businesses expect favourable conditions to persist despite emerging external challenges.
Inflation, meanwhile, remains well contained. Annual headline inflation eased slightly to 2.8 percent in March, down from 2.9 percent in February. The moderation was largely driven by slower increases in core prices and food costs, helping to cushion households even as fuel prices trend upward.
However, risks remain. The Ugandan shilling depreciated by 4.5 percent against the US dollar in March, trading at an average of Shs3,730.53 compared to Shs3,568.23 in February. The decline reflects both global and domestic pressures, including a strengthening US dollar and increased demand for foreign currency from importers and corporate players. Ongoing geopolitical tensions in the Middle East have also disrupted global supply chains, pushing up import costs and intensifying demand for dollars.
External trade dynamics present a mixed picture. Uganda recorded a trade deficit of USD 61.91 million in February 2026, widening from USD 44.54 million in the same period last year. The increase was largely driven by a surge in imports that outpaced export growth.
Still, there is a silver lining. Export earnings rose sharply by 63.7 percent year-on-year to USD 1.37 billion in February 2026, driven mainly by higher receipts from gold and coffee exports—key commodities underpinning the country’s foreign exchange inflows.
Overall, Uganda’s economy remains on a solid growth trajectory, supported by strong domestic activity and rising exports. However, currency depreciation and external imbalances underscore vulnerabilities that policymakers will need to manage carefully to sustain this momentum.
