Abu Dhabi, UAEFriday 23 August 2019

Lebanon's private sector ends 2018 on a grim note

Fiscal deficit ballooned to $4.5 billion in September 2018 from $2bn for the same period last year

Lebanese prime minister Saad Hariri. The country's private sector has had a torrid time. AP
Lebanese prime minister Saad Hariri. The country's private sector has had a torrid time. AP

Lebanon's private sector growth ended the year on a low, slipping to the worst levels seen since September, as political instability continued to weigh on investor and consumer sentiments.

The Blom Lebanon Purchase Managers' Index (PMI), an indicator of business health, slid to 46.2 in December from 46.7 the previous month - ending 2018 below the average of 46.3 over the year.

The index, which has remained persistently below the 50-plus mark indicating growth, did not see any upswing despite the holiday season, which is normally expected to lift sales.

"The PMI results indicated that Lebanese private sector companies saw the sharpest decrease in new orders since September and the fastest fall in new orders for three months," said the report.

The country's economy has been battered by political upheaval and a six-year war in neighbouring Syria during which an influx of refugees stretched Lebanon's public finances and infrastructure. The nation also has one of the world’s highest ratios of debt to gross domestic product, standing at more than 150 per cent.

Lebanon's fiscal deficit ballooned to $4.5 billion in September 2018 from $2bn for the same period last year. Fiscal revenues reached $8.67bn, an annual increase of 3.16 per cent, while government spending including treasury transactions stood at $13.18bn, an increase of 26.16 per cent.

Faster output contraction in December contributed to the fall in the latest PMI, which BlomInvest said was the steepest since September. Lebanon's political impasse over the past seven months following elections is the biggest factor behind the persistently weak demand.

New orders continued to fall sharply, with the latest decline the fastest in three months.

"New export orders fell at an accelerated pace in December. That said, the contraction was moderate overall," the report added.

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Despite falling output and orders, overall unemployment only rose fractionally, with private sector firms cutting jobs at the slowest pace since August,

"Firms compensated for this with faster contraction in purchasing activity," the report added.

With falling orders, firms worked to remove backlogs at the quickest pace seen since the fourth quarter. Volumes of incomplete business also fell sharply in December.

Input cost inflation accelerated, driven by a faster rise in purchases, while wages stagnated following two months of fractional growth.

Profit margins of private firms were also squeezed as companies cut output charges for the tenth month in a row, with the rate of decline the fastest registered since May.

Business outlook remained grim with private sector companies staying pessimistic overall, although sentiment was at the highest level in 10 months.

The International Monetary Fund said in its assessment of Lebanon's economy mid-year that growth was expected to hover between 1 and 1.5 per cent in 2017 and 2018.

Prospects for resolution of Lebanon's current political stalemate remained dim among the panellists surveyed.

Updated: January 5, 2019 02:17 PM

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