Lebanon’s business conditions hit seven-month high amid rise in new orders and output

The country’s private sector seems to be stabilising, but inflation remains high, PMI finds

A supermarket in Beirut. Lebanon's Blom purchasing managers’ index, a measure of the strength of its private sector, rose to 49.7 in March, from 48.8 in February. Getty

Business conditions in Lebanon’s private sector improved in March to a seven-month high, indicating a slower pace of deterioration, amid a relative increase in new orders and output.

The country's Blom purchasing managers’ index (PMI), a measure of the strength of its private sector, rose to 49.7 in March — from 48.8 in February — to reach its highest level since August 2022.

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

“Much has been said about Lebanon’s economic and humanitarian crisis, driven by continuing political paralysis and government’s deliberate inaction. Nevertheless, despite these enormous challenges, the country’s private sector has managed to cope and seems to be stabilising," Stephanie Aoun, research analyst at Blominvest Bank, said.

“The index rise is driven by notable upticks in output and new orders, in addition to a slight rise of stocks of purchases.”

Lebanon, in the grip of its worst economic crisis in decades, continues to suffer from hyperinflation, which hit an annual rate of 190 per cent in February.

Inflation surged to 171.2 per cent in 2022, the highest in nearly four decades, according to official data.

The country's economy contracted about 58 per cent between 2019 and 2021, with GDP falling to $21.8 billion in 2021, from about $52 billion in 2019, according to the World Bank — the largest contraction on a list of 193 countries.

Lebanon’s tax revenue more than halved between 2019 and 2021 in the face of the deepest economic crisis since the end of the civil war, according to the International Monetary Fund.

The fund estimates that the mis-valuation of customs, excises and Vat at the border caused a loss of revenue worth 4.8 per cent of Lebanon’s gross domestic product in 2022.

“Despite the severity of the situation, which calls for immediate and decisive action, there has been limited progress in implementing the comprehensive package of economic reforms … notwithstanding some efforts by the government,” the IMF said last month after a staff mission visit to Beirut.

“This inaction disproportionately harms the low-to-middle-income population and undermines Lebanon’s long-term economic potential. The government, parliament, and the Central Bank must act together, rapidly and decisively to tackle long-standing institutional and structural weaknesses to stabilise the economy and pave the way for a strong and sustainable recovery.”

The country is also suffering due to political instability.

Politicians are deadlocked over the formation of a new cabinet months after parliamentary elections were held and after the six-year term of former president Michel Aoun expired at the end of October.

While output and new orders improved last month, declines persisted in both cases with the rates of decrease being marginal and the softest in seven months, the latest PMI survey found.

Challenging domestic economic conditions and weak client purchasing power weighed on business performance during March.

Local instability also affected export demand, according to companies, with new orders from overseas customers falling for the twentieth successive month.

Operating costs for private sector companies rose amid “unfavourable exchange rate movements” and the rate of input price inflation remained historically steep, the report said.

As a result, firms raised their output charges.

Employment levels remained stable at the end of the first quarter.

“Although there was a small improvement in business sentiment, firms remained pessimistic towards the 12-month outlook for activity in March,” it said.