Lebanon’s private sector continued to shrink last month with a decline in output and new orders as fuel shortages compounded political instability and weak domestic demand.
The Blom Lebanon PMI, which measures operating conditions in the country’s private sector, rose to 46.9 last month, registering only a marginal increase from 46.6 in August. A reading below the 50 neutral mark indicates a contraction.
With new business inflows falling, private sector output in Lebanon declined last month. The decrease in business activity, however, was the slowest in three months. Some companies said that fuel shortages and power cuts had restricted their business operations.
“On the positive side, [it is] worth noting that government formation eased inflationary levels, but that did not halt further deterioration in economic conditions, despite the slight appreciation of the Lebanese lira in the second half of the month,” Fadi Osseiran, general manager of Blom Invest Bank, said.
“Private sector companies remain sceptical about the political environment and its further pressure on their business. However, all this could be turned around – albeit slowly – if the government’s stabilisation and reform plans prove fruitful.”
Lebanon is enduring its worst financial crisis in three decades. Its currency has lost more than 90 per cent of its value against the US dollar, leading to soaring inflation, increased unemployment and poverty.
Inflation rose to an annual 123 per cent in July, while gross public debt increased an annual 5.4 per cent to $98.2 billion at the end of May 2021, from the same month a year earlier.
New orders remained in contraction territory during September, according to Blom Lebanon PMI. Weak purchasing power among domestic clients weighed on demand, the survey showed.
Political instability within Lebanon also hindered businesses from securing new work from overseas markets. As a result, new export orders fell for a second straight month.
Employment levels in Lebanon were broadly unchanged in September, according to the PMI data.
Input prices fell for the first time since January 2019 as stagnant employment levels and reports of an improved US dollar exchange rate alleviated inflationary pressures, the survey data found.
“With the economic and financial crisis still plaguing the country and fuel shortages standing in the way, firms were forced to lower input purchases followed by cutting their stock volumes,” Mr Osseiran said.
Companies reported liquidity issues and low volumes of new work as factors underpinning reduced buying activity. Stocks of purchases also declined and supplier delivery times deteriorated further, the survey found.
Expectations for activity levels over the next 12 months remained deeply pessimistic among businesses in Lebanon. Companies anticipate the challenging political situation to continue and to weigh on business activity, according to the survey.
Lebanon’s economic crisis ranks among the world’s top 10 crises – possibly even the top three – since the mid-19th century, according to a report by the World Bank this year.
The country, however, has been trying to put an end to its political stalemate and appointed billionaire businessman Najib Mikati as its prime minister, after nearly a year without a formal government.
Lebanon's finance ministry said on Monday that the country had resumed talks with the International Monetary Fund for a $10bn programme, a move that could unlock much-needed funds for the country. But the aid is dependent on Lebanon executing a number of reforms.