Lebanon's economic deterioration slows in April

The formation of a new government has given the economy some breathing space, PMI survey says

Lebanese Prime Minister Saad Hariri, speaks during the opening session of the Arab Economic Forum in Beirut, Lebanon, Thursday, May 2, 2019. The forum is taking place amid an economic crisis in Lebanon, which is suffering from slow growth, a high budget deficit and massive debt. The Lebanese government is holding open-ended sessions to discuss to approve the country's draft austerity budget. (AP Photo/Bilal Hussein)

Deterioration in Lebanon's private sector business conditions slowed last month on the back of relative political stability in the country and the softest fall in new export business in almost a year.

The Blom Lebanon Purchase Managers' Index (PMI), an indicator of private sector business health, rose to 46.7 in April, from 46.3 in March. The index has remained persistently below the 50-plus mark indicating growth. Although the latest reading points to deterioration in Lebanese private sector operating conditions, the rate of decline was slower in April compared with March.

“The formation of a new government gave the economy a breathing space with a PMI above 46.3 since February,” said Fadi Osseiran, general manager at Blominvest Bank. “However, it is only with a reforms-based government budget that the economy has a chance to pick up.”

Lebanon’s budget deficit will have to drastically decline in order to unblock donors’ soft loans pledged at the CEDRE conference to rebuild the fading infrastructure and for investors’ confidence to be restored, Mr Osseiran noted.

Lebanon is grappling with debt-to-GDP ratio of about 150 per cent, one of the highest in the world. The country has struggled revive its economic growth and control its finances. The economy has also been battered by political upheaval and a six-year war in neighbouring Syria during which an influx of refugees has stretched Lebanon's public finances and infrastructure.

Output continued to contract in April, albeit at a slower rate than in March. The business managers surveyed attributed the fall in output to widespread economic slowdown. A decline in demand was also evident in April as sales at Lebanese private sector firms fell in each month since June 2013 .

“The rate of contraction eased slightly ... it remained historically elevated and sharp overall,” according to the PMI survey, which is sponsored by Blominvest Bank and compiled by IHS Markit,

The reduction in new business was partially driven by a further decrease in international sales with some firms attributing the decline to regional instability. The latest contraction in exports was only marginal overall and the softest recorded for nearly a year.

Private sector firms continued to cut staff numbers at the beginning of the second quarter. However, the rate of reduction remained only marginal overall and eased slightly from what was seen in March. On the price front, input costs increased slightly during April on the back of a rise in purchase prices, while wages stabilised.

Pessimism towards the business outlook prevailed amid expectations for continued political and economic instability. The degree of negativity increased to the greatest recorded in 2019 so far, the survey said without detailing figures.