Lebanon’s business conditions deteriorate in October as hyperinflation persists

Weak purchasing power and rising prices lead to reduction in output and new orders

A worker loads dough at a bakery in Beirut, Lebanon, where business conditions continue to deteriorate. Bloomberg

Lebanon’s private sector continued to show a deterioration in business conditions in October as output and new orders declined amid persistent hyperinflation, challenging financial conditions, political uncertainty and weak domestic purchasing power.

The Blom Lebanon Purchasing Managers’ Index rose to 49.1 in October, from September’s four-month low of 48.8.

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

“The private sector in Lebanon revealed signs of improvement for the month of October, yet it operated relatively under serious challenging conditions,” said Aline Azzi, research analyst at Blominvest Bank.

“Surprisingly, a lower Lebanese exchange rate has not stimulated higher exports as new export orders dropped, while output and new orders increased, yet remained below the 50 threshold.”

Lebanon is in the grip of an economic crisis described by the World Bank as one of the worst in modern history.

In September, the International Monetary Fund called on Lebanese authorities to put in place critical structural and financial reforms, a pre-requisite to securing $3 billion of assistance from the lender that is expected to help the country emerge from the economic crisis.

Securing IMF backing will help to unlock a further $11bn of assistance that was pledged at a Paris donor conference in 2018, which is also tied to a slew of reforms.

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

Lebanon’s economy collapsed after it defaulted on Eurobonds worth about $31bn in March 2020, with its currency sinking more than 90 per cent against the dollar on the black market.

Demand conditions worsened during October as a result of weak client purchasing power and rising prices, the Blom Bank survey showed.

The Lebanese pound’s unfavourable exchange rate against the US dollar continues to exacerbate inflationary pressures.

New orders from overseas markets declined owing to inflationary pressures in October.

Companies increased selling charges because of the rising cost of the US dollar and as they sought to pass on expenses to clients, although it was the softest rise since July.

Challenging financial conditions also restricted output volumes at some companies, the survey found.

Companies facing liquidity issues decreased their purchasing activity and stock levels.

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Employment levels and backlogs of work decreased fractionally in October, while disruptions at ports contributed to supplier delays.

Business confidence remained in negative territory, with companies anticipating uncertainty about the political and economic environment.

“Short term, cautious positivity would be on the horizon. Nevertheless, the financial and economic crises in the country remain a major challenge for the government,” Ms Azzi said.

The country was officially in another power vacuum on Sunday as Michel Aoun left the presidential palace, with parliament yet to decide on his successor.

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.