Lebanon economy ‘on hold’ after fleeting summer resurgence

Reuters

• Economic indicators of output and orders fell, says report 
• Staff and spending cuts as costs rise due to hyperinflation

Lebanon’s private sector cut jobs in November as declining orders spurred companies to reduce spending amid prolonged political uncertainty, according to the latest purchasing manager’s index (PMI) report. 

The BLOM Lebanon PMI slumped to a seven-month low of 48.1 last month, down from 49.1 in October. A reading above 50.0 shows improving business conditions, while below 50.0 indicates a deterioration. 

The figures suggest a summer economic resurgence has proved fleeting.

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“The Lebanese economy has lost steam as no internal economic forces are available to keep the summer momentum,” Dr Ali Bolbol, chief economist and head of research at BLOMINVEST Bank said in a statement announcing the PMI data.

“Not surprisingly, all real indicators fell – output, new orders, and new export orders.”

Increased spare capacity led companies to cut staff and spending, the report revealed, noting input costs continue to rise – due to hyperinflation – and the business outlook remains downbeat because of uncertainty over Lebanon’s “political and economic climate”. 

Lebanon’s unemployment rate was 29.6 percent in January, according to the most recent official data. 

Following parliamentary elections in May, Lebanon’s cabinet met for the first time on Monday, although several ministers boycotted the gathering. 

In the meeting, caretaker prime minister Najib Mikati called for the “separating politics from all the governmental work”, according to the state news agency, with Lebanon still to elect a new president after ex-president Michel Aoun’s term ended on October 31. 

Referring to the impact of the political impasse on business confidence, Bolbol said: “The reason for these dismal results is that the country is still on hold, waiting like many instances before it for something to happen, the election of a new president this time. 

“That said, we hope the upcoming holiday season will bring a short relief to the economy and, better still, a longer relief underpinned by positive political developments and credible agreements on economic reform and renewal,” he added. 

Lebanon’s government in April reached a provisional agreement with the International Monetary Fund for a 46-month support package worth around $3 billion, although the country has yet to implement fully several reforms required to receive the funds. These include anti-corruption measures. 

“Progress has been made, but progress has been slow,” Jihad Azour, director of the IMF’s Middle East and Central Asia department said at a press conference on October 13. 

The Lebanese pound officially remains pegged at 1,507.5 to the dollar, but the black market – or real – exchange rate is now around 41,500 after the central bank and domestic banks suffered multibillion-dollar losses.

The central bank plans to adopt a new exchange rate of 15,000 pounds to the dollar from February 1, Reuters reported. 

Lebanon’s real GDP will shrink 1.5 percent to in 2021, S&P Global forecasts in what would fifth straight annual contraction. Real GDP has fallen 41 percent since 2017, S&P data shows.