Economic activity in Lebanon remains sluggish

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• PMI fell to 48.7
• Seven-month low in PMI score
• Tourism predicted to bring in $9bn

Lebanon’s economic activity appears to have contracted in August following a summer business lull according to a purchasing managers’ index published on Tuesday. 

The PMI is a monthly report based on survey responses from businesses regarding five subdivided performance indicators including new orders, output and employment.

The report, compiled by BLOMInvest Bank and the ratings agency S&P Global, recorded a score of 48.7. A score below the 50.0 threshold signifies economic contraction.

The slip below the halfway point follows two consecutive months of growth: July’s 50.3 and June’s 50.2.

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In a note accompanying the report, Stephanie Aoun, researcher at BLOMInvest Bank, said the decrease was partly a result of “a drop in summer engagement activity” given Lebanon’s current reliance on the summer influx of tourists and expatriates.

Added to this was uncertainty around a number of issues, including the status of the central bank governor.

The report also recorded the first contraction on new orders in three months as businesses turned their attention to addressing a backlog of old orders. Survey respondents reported a rise in their input costs amid reports of unfavourable exchange rate fluctuations.

The report marks a seven-month low in PMI readings and is a blow to hopes that Lebanon was undergoing a period of gradual recovery. 

“You have to be surprised given that August is the summer peak month,” said head of economic research and analysis at Byblos Bank, Nassib Ghobril. “Tourism is in the spotlight.”

Tourism minister Walid Nassar announced in May that Lebanon would welcome a near-record of 2.2 million tourists in 2023, with around 75 percent consisting of expatriated Lebanese. This influx, Nassar estimated, would generate $9 billion in revenue.

Some have suggested that Lebanon’s increasing dependence on tourism and remittances from its sizeable diaspora is not a sustainable approach to stimulating economic activity or improving the economy. 

In an article last month, The Economist likened money flowing in from expatriated nationals to Lebanon’s version of the “Dutch disease”, a term the magazine coined in 1977 to describe how the Netherland’s mineral wealth undermined the economy by pushing up prices for Dutch consumers.

Negotiations surrounding a new funding package from the International Monetary Fund remain stalled. Little progress has been made on reforms agreed to in a staff level agreement in April 2022.

“You need investment” to grow the economy, said Ghobril. “That requires confidence and that comes from reforms.”