BUSINESS NEWS
New figures from the Uganda Bureau of Statistics (UBOS) show an economy that is still expanding but losing some of the momentum it built up over the past year. Gross Domestic Product grew 5.8 percent year-on-year in the third quarter of the 2025/26 fiscal year, a marked slowdown from the 8.5 percent expansion recorded in the same quarter a year earlier. At the same time, the Ugandan shilling has emerged as the best-performing currency in the East African Community, and full-year growth for FY2025/26 is tracking at 6.4 percent — slightly ahead of the 6.3 percent recorded the previous year. The picture that emerges is of an economy that remains fundamentally healthy on an annual basis even as quarter-to-quarter momentum cools, inflation edges upward, and policymakers project continued expansion toward a $66 billion GDP by the end of 2026.
What is happening
UBOS's Quarterly GDP release for Q3 2025/26 shows the deceleration was broad-based on a seasonally adjusted quarter-on-quarter basis: overall GDP rose just 1.2 percent quarter-on-quarter, down sharply from 3.6 percent growth in the second quarter. Agriculture contracted by 1.3 percent and industry fell 2.3 percent, while services — the largest and steadiest component of Uganda's economy — grew 4.0 percent and helped offset the weakness elsewhere. Despite the quarterly slowdown, the year-on-year comparison and the full fiscal-year trend both remain positive, with the economy on pace to grow 6.4 percent for FY2025/26 as a whole.
Inflation, meanwhile, has ticked up modestly. The Consumer Price Index showed annual inflation at 3.7 percent for the twelve months to June 2026, up from 3.2 percent in the year to May. UBOS attributed the increase mainly to higher beef prices — driven by elevated feed costs and shifting livestock market dynamics — along with rising costs for passenger transport and school-related expenses. Core inflation, which strips out food and energy, also rose, to 3.4 percent in June from 3.0 percent the month before. Even so, inflation remains well within the Bank of Uganda's comfort zone and far below levels that would typically trigger aggressive monetary tightening.
The currency has been a bright spot. The shilling appreciated 1.9 percent against the US dollar between May and June 2026, a gain officials attribute to higher export earnings, increased remittances, greater offshore investment inflows, and what the Uganda Investment Authority describes as sound macroeconomic management. That appreciation made the shilling the strongest-performing currency in the East African Community over the period, a notable achievement given the currency pressures many regional peers have faced from global interest-rate conditions and commodity price swings.
Background and context
The Q3 figures land against a backdrop of what Ugandan officials have been calling a broadly optimistic economic outlook. The Purchasing Managers' Index and Business Tendency Index have both averaged comfortably above the 50-point expansion threshold — 53.7 and 57.6 respectively — indicating that businesses across sectors expect continued, if moderate, growth. Export earnings and remittances have both risen substantially, contributing to what officials describe as the largest Balance of Payments surplus in fifteen years. Longer-term, the Uganda Investment Authority projects the country's GDP will reach roughly $66 billion (about UGX 250 trillion) by the end of 2026, up from a current base of around $59.3 billion — a trajectory that would represent one of the more sustained growth runs in East Africa if it holds.
The quarterly slowdown itself is not entirely surprising set against that backdrop. Agricultural output is inherently seasonal and vulnerable to weather variability, and a 1.3 percent contraction in a single quarter is not unusual even within a year of solid annual growth. The bigger question raised by the data is whether industrial output — which fell 2.3 percent in the quarter — reflects a temporary soft patch or the start of a more sustained deceleration, particularly if global oil prices, elevated in recent months due to Middle East tensions, continue to push up energy and transport costs domestically.
Who the main players are
The Uganda Bureau of Statistics is the primary source of the growth and inflation data driving this story, publishing both the Quarterly GDP release and the Consumer Price Index. The Bank of Uganda, as the country's monetary authority, will be watching the inflation uptick closely as it calibrates policy in the months ahead, while the Ministry of Finance, Planning and Economic Development is targeting a more ambitious 10.2 percent growth rate for the year ahead and has already released Shs 23 trillion for the first quarter of the new fiscal year to support that goal. The Uganda Investment Authority has been the most vocal cheerleader for the medium-term outlook, framing the current numbers within a longer growth narrative aimed at reassuring investors.
Why it matters
For ordinary Ugandans, the combination of solid annual growth, contained inflation and a strengthening currency is a genuinely favorable mix — it suggests import costs are not spiraling and that the broad economy continues to expand even if certain sectors wobble quarter to quarter. For businesses and investors, the divergence between strong annual figures and a softer quarterly print is a signal to watch sector-level data rather than headline growth alone, particularly in agriculture and industry, both of which are more exposed to input costs, weather and energy prices than the services sector that is currently carrying growth. The inflation uptick, while modest, is also a reminder that Uganda is not insulated from global commodity and oil price dynamics, even with a strong currency cushioning some of that pressure.
What to watch next
The most immediate marker to watch is whether the Bank of Uganda responds to the June inflation uptick with any shift in its monetary stance, or whether it reads the 3.7 percent rate as comfortably within target and holds steady. On the fiscal side, the government's pursuit of 10.2 percent growth for the coming year — nearly double the rate just posted — will require either a rebound in agriculture and industry or an acceleration in services beyond its already solid 4.0 percent quarterly pace; the credibility of that target should become clearer as Q1 FY2026/27 data starts to arrive later this year. Beef and transport cost trends bear watching as the specific drivers of the recent inflation increase, since a reversal or continuation there will shape the next few CPI prints. Finally, given that export earnings and remittances have been central to both the shilling's strength and the record Balance of Payments surplus, any shift in remittance flows or global demand for Uganda's exports would be an early signal of whether the currency's run as the region's best performer can continue.
