Lebanon’s business conditions register softest decline in 19 months

Output and new orders decreased at the slowest rate since October 2019

A driver fills his tank at a petrol station in the Lebanese capital Beirut. The country's shrunk by 20.3 per cent last year, after a 6.7 per cent contraction the year before, according to the World Bank.. AFP
A driver fills his tank at a petrol station in the Lebanese capital Beirut. The country's shrunk by 20.3 per cent last year, after a 6.7 per cent contraction the year before, according to the World Bank.. AFP

Lebanon's private sector shrunk at a slower pace in May, with business conditions hitting a 19-month high due to a slower decline in output and new orders.

The Blom Lebanon PMI, which measures operating conditions in the Lebanese private sector, rose for the fourth consecutive month and recorded a reading of 47.9 in May from 47.1 in April. However, it remained below the 50.0 mark that separates growth from contraction.

The PMI reading was driven mainly by a slower decrease in output and new orders, with rates of decline easing to the slowest since October 2019 in both cases.

The rates of inflation in purchase costs and selling prices also softened from the spikes in March and April. Employment dropped for the third month in a row but the rate of job cuts remained marginal, according to the survey.

“This shows the economy’s built-in ability to adjust – albeit slowly – to the country’s current crisis, especially in the case of new exports that hit the 50 mark and were no doubt driven by the weaker exchange rate,” Ali Bolbol, chief economist and head of research at Blom Bank, said.

The economy, though, “hasn’t turned the corner, and still has a long way towards recovery", he cautioned.

Swift formation of a "capable and reforming government of experienced specialists", will help the economic recovery.

Lebanon is dealing with its largest peacetime economic and financial crisis, compounded by the Covid-19 pandemic, the Beirut port explosion and inadequate policy responses amid more than a year of political infighting.

The economy shrunk by 20.3 per cent last year, after a 6.7 per cent contraction the year before, according to the World Bank.

The country's current situation is expected to rank among the world’s top 10 crises – possibly even the top three – since the mid-19th century, the Washington-based lender said earlier this week.

The Lebanese pound has plunged more than 80 per cent against the US dollar on the black market, while the country’s inflation hit 158 per cent in March this year.

“Companies remained strongly pessimistic regarding the 12-month outlook for business activity, with the ongoing challenges of the economic and political environment set to hinder efforts to expand output,” according to the survey.

Lebanon has had three notable periods of civil strife in its history – the first dating back to the 1860s, the second in the 1950s and third, which started in 1975 and lasted 15 years.

The current economic crisis “has exacerbated long-term national deficiencies including institutional weaknesses, failed economic and social policy and dismal public service delivery. In such an environment, there is growing weariness of triggers for social unrest”, the World Bank said.

Lebanon's gross domestic product has plunged to an estimated $33 billion in 2020, from nearly $55bn in 2018.

Updated: June 3, 2021 06:23 PM

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