Business activity in Lebanon plunged to an 11-month low in September and is projected to worsen over the next 12 months.
The Purchasing Managers Index, a gauge of the health of the private sector sponsored by Lebanon's Blominvest Bank and compiled by IHS Markit, fell to 46 in September. Readings above 50 indicate an improvement in business conditions, while readings below 50 signal a deterioration.
The worsening conditions were attributed to lower demand for goods and services as the political uncertainty gripping the country, weak economic conditions and cash-flow problems take their toll.
“Weak demand produced faster declines in the output and new orders indices, and a stronger euro and more expensive material costs increased the input costs indices,” said Ali Bolbol, the chief economist at Blominvest Bank. “September’s survey also revealed that the lack of activity has been negatively impacting employment, with firms marginally reducing their staff numbers.”
The survey also said many firms expect conditions to continue to deteriorate over the next 12 months.
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Lebanon, which has one of the world's highest debt-to-GDP ratios, is struggling to lower its fiscal deficit as the economy slows and geopolitical tensions dent investor confidence in the country. The debt-to-GDP ratio, which reached 148 per cent last year, is rising because of the slow growth and debt servicing costs.
Moody’s Investors Service downgraded the country’s sovereign credit rating in August, citing the worsening debt burden, which is the third-highest among its rated sovereigns.
Moreover, business confidence is plummeting as the government proposes raising taxes on a slew of services and goods, which is expected to further worsen business conditions in the country.
The continuous contraction of “the business environment seems to have been adversely affected by the state of public finances and the uncertainties regarding the new taxes, in addition to the downgrade of sovereign credit rating by Moody’s,” added Mr Bolbol.