Business activity in Lebanon worsened at the slowest pace in nine months as output and new orders declined at a tepid rate amid uncertainty as politicians wrangle over the formation of a new government.
Blominvest Bank’s Purchasing Managers Index rose to 46.7 in November from 46.2 in October, the slowest rate of decline since February, according to the survey, which is sponsored by the lender and complied by IHS Markit. A reading below the 50 mark signals a contraction in private sector activity and above 50 indicates growth.
“What is important is that these slower declines gather more strength to reach the 50 mark and more,” Ali Bolbol, Chief Economist at BLOM Bank said. “That is something we hope to be helped by a swift formation of a new government and the implementation of a comprehensive economic reform program.”
Lebanon, which is grappling with the world's third highest debt-to-GDP ratio of about 150 per cent, is struggling to revive economic growth and control its finances. Ongoing political wrangling over the formation of a new government after the May parliamentary elections and the hosting of over one million Syrian refugees have exacerbated years of economic stagnation.
The World Bank and Lebanon's caretaker finance minister last month called for the formation of a new government after half a year of political stalemate, highlighting the need for a new administration to halt "confusion" over the economy.
Companies remained pessimistic about the private sector outlook on fears that the political situation may not improve and the uncertainty would weigh on future output, the PMI report said.
"Sentiment improved marginally compared to October but remained strongly negative due to fears of continued political impasse," it said.
Political instability weighed on new orders, which fell for the 66th month in a row during November. However, this contraction was also the slowest since February.
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New export orders also fell at a weaker pace as businesses reported only marginal decline.
As business activity contracted and fewer new orders came in, companies made further job cuts and pared back on purchases in November.
Tough economic conditions spurred further competition, prompting firms to cut output prices for the ninth consecutive month.
An increase in input prices continued to pressure profit margins. The latest rise in costs was driven by higher purchasing prices and staff costs.
The purchasing managers’ index has shown business activity in decline every month since 2013, according to Reuters.