Lebanon's business conditions worsen further in October

Business confidence remained 'deeply pessimistic' amid political and economic uncertainty, with many firms expecting conditions to deteriorate

A man shops inside a supermarket in Beirut, Lebanon, September 8, 2021. Reuters

Lebanon's private sector continued to shrink in October, as output and new orders declined further, despite the formation of a new government and the restart of talks with the International Monetary Fund.

The Blom Lebanon PMI, which measures operating conditions in the country's private sector, fell to 46.6 in October, from 46.9 in September, remaining below the 50.0 mark that separates growth from contraction.

"Alas, this is Lebanon, and bad news and events have a way of clawing back to spoil the scene, as the unfortunate events of 14 October amply demonstrated," said Ali Bolbol, chief economist and head of research at Blom Bank, referring to the deadly armed clashes over an investigation into Beirut's port blast. "Not surprisingly, all the PMI sub-indices behaved badly, with the exception of employment."

Lebanon is suffering from one of the world's deepest economic depressions on record. An IMF bailout is widely seen as the only way for the country to unlock desperately needed aid to help it emerge from its worst crisis in three decades. Lebanon defaulted on about $31 billion of Eurobonds in 2020. Its currency has lost more than 90 per cent of its value against the US dollar, leading to surging inflation, increased unemployment and poverty.

Companies' output slipped to a seven-month low in October and signalled a sharper decline in business activity across the Lebanese private sector, according to Blom Bank. Weak demand was reportedly exacerbated by the unstable political and economic environment domestically, it said.

New orders fell at the fastest pace for seven months as the price of the US dollar increased, eroding domestic clients' spending power, the survey showed.

New export business also fell, with firms struggling to attract foreign buyers due to economic and political instability in Lebanon.

Firms' business confidence remained "deeply pessimistic" during October. The uncertain economic and political climate made it challenging for firms to predict future activity levels, although many expect conditions to worsen over the next 12 months, the survey said.

"The country needs plenty of good luck and sound, determined work by the new government to reverse these dismal trends, and an elevation of economic priorities over all other concerns," Mr Bolbol said.