Lebanon records a slowdown in deterioration of business conditions

Private sector companies' output and new orders declined at a slower pace

New orders declined in December, which many Lebanese businesses attributed to eroding purchasing power among domestic clients. Photo: AFP

Lebanon recorded a slowdown in deterioration of its business conditions in December as companies' output and new orders declined at a slower pace, although the challenging political and economic climate remain a significant hindrance to the growth of the private sector.

The Blom Lebanon PMI, which measures operating conditions in the country's private sector, rose to 46.7 in December, up from 46.1 in November, remaining below the 50.0 mark that separates growth from contraction.

Despite the uptick, the survey of companies still indicated a deterioration in Lebanon's private sector and the "static facets" of the economy.

"Falling purchasing power is facilitating a continuous slowdown in demand and new orders, and a decline in employment as a result," said Tala Nasrallah, senior research analyst at BlomInvest Bank. "As such, prompt action is vital by the new government while going into 2022 to avoid the crisis from deepening.”

Lebanon is suffering from one of the world's deepest economic depressions on record. A bailout by the International Monetary Fund is widely regarded 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.

“The month of December witnessed further depreciation of the Lebanese currency, with output prices increasing at the fastest pace for five months, resulting in rising inflationary pressures," Ms Nasrallah said.

Companies' output fell during December owing to the continuing political and economic crises and weak demand, but the rate of contraction in business activity was the weakest since September.

New orders also declined during the month, which many businesses attributed to eroding purchasing power among domestic clients. Demand by foreign customers also fell as the political and economic environment in Lebanon hurt companies' ability to trade internationally.

Employment fell for a second consecutive month as private-sector firms registered a greater amount of spare capacity.

Inflationary pressures intensified during December, the survey data showed. The US dollar exchange rate worsened, pushing up purchase costs. The overall rate of input price inflation accelerated as a result and was the strongest since July.

To protect margins, private sector businesses in Lebanon raised their selling prices to their highest level in five months.

Lebanese companies' outlook remained pessimistic during December as many businesses expect the political and economic situation to deteriorate over the coming 12 months, according to the survey.