Lebanon private sector activity falls to 7-month low as output and new orders decline

Headline index falls from July's 10-year high as demand slows

A woman walks in front of currency exchange shops at Hamra street in Beirut. The devaluation of the Lebanese pound has exacerbated inflationary pressures. EPA

Business conditions in Lebanon’s private sector fell to a seven-month low in August from a 10-year high in July, as output and new orders declined.

The downturn follows two consecutive months of the headline survey being in expansionary territory as the country endures its worst economic crisis since its independence.

Lebanon's Blom purchasing managers’ index, a measure of the strength of the country’s private sector economy, fell to 48.7 in August from 50.3 in July, sliding into contraction territory.

The contraction was the fastest in six months, dragged down by challenging domestic conditions that dented output volumes.

A reading above 50 indicates an expansion in business conditions, while one below represents a contraction.

"This contraction was precipitated by a simultaneous decrease in output and new orders, while employment stabilised," said Stephanie Aoun, research analyst at Blominvest Bank

"The Lebanese economy heavily relied on tourism and expats activity and it seems that in August 2023, there was a drop in summer engagement activity."

Softer demand drove business activity lower in August, marking the first contraction in new orders for three months, with the decline of a similar strength to that seen for output.

New work intakes were adversely affected by political and economic uncertainty, with new export business declining for the first time since March.

Lebanon has been without a president since the end of October 2022, when the six-year term of Michel Aoun ended. It is being run by a caretaker cabinet led by Prime Minister Najib Mikati, with limited powers.

The election of a president requires the consensus of the country's political elite.

Political vacuums have stalled Lebanon's economic progress and the existing one is salient because it threatens the enactment of reforms deemed necessary for the nation to emerge from its worst financial crisis.

"As the Lebanese economy navigates these turbulent waters, it's concerning to note that the absence of substantial economic reforms continues to cast a shadow," said Ms Aoun.

"Without meaningful changes, Lebanon's trajectory remains uncertain, underscoring the pressing need for impactful reforms to steer the nation towards a more promising economic future.”

The World Bank has dubbed Lebanon's economic meltdown as among the world's worst since the 1850s.

PMI survey respondents cited exchange rate fluctuations that drove input costs higher, prompting businesses to lift their charges. The Lebanese pound has lost more than 90 per cent of its value and inflation has soared after the central bank devalued the currency in February.

The official exchange rate changed to 15,000 pounds to the US dollar, compared with the peg in place since 1997 of 1,507.50 to the dollar.

Despite the decline in the PMI index, the survey found there was "a marked improvement in business sentiment in August as firms became less pessimistic in their assessment of year-ahead prospects for business activity". The survey's Future Output Index rose to its highest level since March 2020.