Lebanon’s business conditions hit four-month low as output and new orders fall

Exchange rate weakness continues to drive purchase costs higher

Protesters carry banners outside Lebanon's central bank in Beirut as they demand their savings from Lebanese banks. AFP
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Lebanon’s business conditions fell to a four-month low in September, reversing an earlier move into expansion territory during August as output and new orders declined amid persistent hyperinflation in the country.

The Blom Lebanon Purchasing Managers' Index reading dropped to 48.8 last month, from 50.1 in August, which was its highest since June 2013.

A reading above the neutral level of 50 indicates growth while one below it points to a contraction.

“As the summer season has come to an end, Lebanon is evidently witnessing a decrease in tourist arrivals and spending, in addition to the strike of banks,” said Stephanie Aoun, a research analyst at Blominvest Bank.

“Therefore, the business activity in Lebanon's private sector is continuously shrinking amid rising inflation, political instability and weakening of the Lebanese pound.”

New orders fell at a quicker pace, reflecting weaker sales performances both domestically and abroad, the survey showed. Output also declined at a stronger rate, although backlogs of work fell for the first time in three months as private businesses made inroads in fulfilling outstanding orders.

The Lebanese pound's unfavourable exchange rate against the US dollar, which has resulted in the local currency losing more than 90 per cent of its value, continues to exacerbate inflationary pressures.

This has led to an increase in selling charges as companies sought to pass greater expenses on to clients.

Lebanon recorded its 26th consecutive month of triple-digit Inflation in August, with the Central Administration of Statistics' Consumer Price Index rising to 162 per cent from the same month a year earlier. The index increased by about 7.6 per cent from July 2022.

The country is expected to post the second-highest inflation rate in the world this year, trailing Sudan, according to Fitch Solutions.

The weaker client purchasing power weighed on new business intakes. As a result, companies directed additional resources to clearing outstanding work. This led to backlogs falling.

Employment levels fell fractionally for a second successive month as a result of the weakening new orders.

Business confidence remained subdued, with companies expecting a challenging year ahead due to political and economic uncertainty.

Last month, the International Monetary Fund called on Lebanese authorities to put in place critical structural and financial reforms, a prerequisite to securing $3 billion of assistance from the lender that is expected to help the country emerge from its worst economic crisis.

Lebanese politicians are deadlocked over the formation of a new Cabinet more than four months after parliamentary elections were held.

The country's political elite have also yet to agree on a new president as the six-year term of incumbent Michel Aoun expires on October 31.

Political impasses have previously led to political vacuums in the country and stalled its economic progress.

Lebanon was without a president for two and a half years until Mr Aoun's election by the 128-seat Parliament in 2016. His predecessor, Michael Sleiman, was elected in 2008 after the position had been vacant for 18 months.

Updated: October 06, 2022, 5:09 AM