Business output in Lebanon slumps at fastest rate on record
Monthly PMI data shows sharp decline as crisis hits firms' operations
Business conditions in Lebanon deteriorated at the fastest rate in years as the country remained in the grip of country-wide protests.
The monthly BLOM Lebanon Purchasing Managers Index, a survey of conditions in the private sector, fell at the sharpest rate since the data was first gathered in May 2013.
Business output contracted at the sharpest rate on record as the index declined to 37.0 in November, down from 48.3 in October, when data was recorded up until civic protests started on the 17th. A score above 50.0 represents an overall improvement in business conditions, whereas a reading below 50.0 marks a deterioration.
“The PMI reached its lowest level since inception in November because of the political deadlock and the protests that have been going on from October 17," said Marwan Mikhael, head of research at Blominvest Bank.
Lebanon’s economy has been shrinking since mid-2013 but the recent protests have caused a severe curtailment in activity.
Disruptions also led to a fall in new orders, with the businesses surveyed suggesting that protests had dampened demand. Export orders were also hit.
Output was also disrupted by input shortages caused by road and port blockages.
"These very low levels of production and demand were accompanied by a large increase in input and output prices as a parallel exchange market emerged due to capital control measures taken by banks," Mr Mikhael added.
He said the Lebanese pound is being exchanged at a 25-35 per cent discount on the parallel market to official rates, meaning some importers were having to pay a premium to import the goods they need. This has caused companies to report the highest level of cost inflation since January 2018, when the country's sales tax was hiked.
The protests that erupted in October led to the resignation of prime minister Saad Hariri in the same month, while its under-fire central bank has attempted several measures to shore up the country's currency.
Although the Lebanese pound has officially maintained its dollar peg and no formal capital controls have been introduced, banks have been restricting the amounts that customers can withdraw and on Wednesday Reuters reported that the central bank, Banque du Liban, had issued a circular capping the amount banks can pay in interest on foreign currency deposits at 5 per cent and on Lebanese pound deposits at 8.5 per cent.
The central bank had already instructed lenders not to pay out dividends to shareholders in a bid to shore up capital buffers.
Lebanon's economy is suffering after years of mismanagement have culminated in the country accruing public debt of $86.8 billion (Dh316bn) of public debt by the end of September, equivalent to more than 150 per cent of gross domestic product.
"A new government has to be formed as soon as possible to start tackling the current unsustainable situation through a series of drastic structural and short-term measures,” Blominvest's Mr Mikhael said.
Updated: December 4, 2019 07:15 PM