Lebanon's economy continues to worsen following Beirut port blast

Businesses cite disruption caused by explosion as a factor in weakening demand

This Aug. 29, 2020 photo shows rubble and debris around the silo that was destroyed by Aug. 4 explosion that hit the seaport of Beirut, Lebanon. The Lebanese military discovered more than 4 tons of ammonium nitrate near Beirut's port on Thursday, Sept. 3, a find that's a chilling reminder of the horrific explosion. (AP Photo/Hussein Malla)

Business conditions in Lebanon continued to deteriorate last month, with Beirut's port explosion further disrupting the operations of the private sector.

The BLOM Lebanon PMI index, a measure of the strength of the country's private sector, fell markedly to 40.1 in August from 44.9 in July, the fastest rate of decline since May. A reading above 50 denotes economic expansion and one below 50 represents contraction.

“As if Lebanon is short of catastrophes, the explosion to the Port of Beirut on August 4, 2020 has come to add severely to the country’s woes,” said Blominvest Bank general manager Fadi Osseiran.

“With three shocks plaguing the country – the economic and financial crisis, the Covid-19 epidemic and the Port of Beirut blast – it is not surprising that output contractions accelerated and future business expectations are at their lowest ever."

The port blast killed 190 people and injured 6,500. Lebanese businesses were already struggling before the explosion as the country endures its worst financial and economic crisis since the end of its last civil war in 1990.

The Institute of International Finance estimates that Lebanon’s economy will shrink 24 per cent this year a far sharper decline than before the blast. In March, Lebanon defaulted on $31 billion (Dh113.84bn)worth of Eurobonds and its currency, has lost more than 80 per cent of its value against the dollar on the black market so far this year.

Respondents to the Blominvest survey said the blast at the port had caused "severe disruption" to their operations.

New orders weakened, with anecdotal evidence indicating that "temporary business closures related to the explosion had hindered demand conditions".

Input costs also continued to rise, but at a less steep rate than experienced over the previous three months. Job cuts also continued, but are showing signs of stabilising with the rate being the softest for three months, the survey found.

Lebanon has endured months of upheaval following protests that began in October last year over corruption and economic mismanagement. Talks with the International Monetary Fund about a $10bn bailout, which could trigger further pledges of investment that are dependent on the implementation of reforms, have stalled due to political wrangling.

"The least that can be done in these dire circumstances is to form a competent and active government as soon as possible, so as to tackle these difficulties and to garner international support and confidence,” Mr Osserian said.