Lebanon’s private sector economy continued to contract in June

Output and new orders slumped further and the pace of job losses accelerated

People queue outside a currency exchange bureau in Lebanon's capital Beirut on June 18, 2020. (Photo by JOSEPH EID / AFP)
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Lebanon’s private sector economy continued to contract in June, but at a softer pace since February, as weak demand and a sharp fall in output worsened business conditions, putting more pressure on an economy that has faced months of turmoil.

The BLOM Lebanon PMI index, a composite gauge that measures the strength of the private sector economy, rose to 43.2 in June, from 37.2 in May, pointing to another “marked deterioration in business conditions”. A reading above 50 indicates economic expansion while one below 50 points to a contraction.

Output and new orders slumped further, and the pace of job losses increased during the month as the country experiences an economic crisis caused by the coronavirus pandemic and liquidity issues stemming from the mismanagement of the economy.

New export orders fell drastically for the fourth month in a row and weaker demand led to more job losses at the end of the second quarter, with the rate of workforce contraction hitting its quickest pace since March, according to the latest report from Blominvest Bank.

The volume of outstanding business continued to decline markedly, although the rate of depletion eased for the second month running, the report said. Survey respondents said that the fall in backlogs was due to softer inflows of new work.Lebanon’s private sector economy continued to contract in June, but at a softer pace since February, as weak demand and a sharp fall in output worsened business conditions, putting more pressure on an economy that has faced months of turmoil.

The BLOM Lebanon PMI index, a composite gauge that measures the strength of the private sector economy, rose to 43.2 in June, from 37.2 in May, pointing to another “marked deterioration in business conditions”. A reading above 50 indicates economic expansion while one below 50 points to a contraction.

Output and new orders slumped further, and the pace of job losses increased during the month as the country experiences an economic crisis caused by the coronavirus pandemic and liquidity issues stemming from the mismanagement of the economy.

New export orders fell drastically for the fourth month in a row and weaker demand led to more job losses at the end of the second quarter, with the rate of workforce contraction hitting its quickest pace since March, according to the latest report from Blominvest Bank.

The volume of outstanding business continued to decline markedly, although the rate of depletion eased for the second month running, the report said. Survey respondents said that the fall in backlogs was due to softer inflows of new work.

On the cost front, input prices continued to soar. The rate of inflation ticked up fractionally to its quickest in over seven years and the underlying data suggested that the rise in cost burdens was primarily driven by a sharp increase in purchase prices, which more than offset a solid reduction in staff costs.

“With the easing of the corona[virus] lockdown in June, all sub-indexes – with the exception of future output and employment – deteriorated but at a much softer pace,” Ali Bolbol, chief economist and head of research at Blom Bank, said.

"These excepted sub-indexes show, however, that the core of the Lebanese crisis is yet to be addressed as expectations of future recovery and of employment worsened even more.

“That is in addition to the highest rate on record of output price increases caused primarily by the steep exchange rate depreciations. If anything, these results indicate that the government and the financial community should stop arguing about what the exact financial losses are and move on to start implementing growth-enhancing reforms that are badly needed and largely independent of the size of these losses.”

Lebanon is battling a financial crisis regarded as its biggest threat since the civil war of 1975 to 1990, while the Lebanese pound has lost 75 per cent of its value since October. Debt ballooned to $92.4 billion (Dh339bn) at the end of March, giving Lebanon one of the highest debt-to-gross domestic product ratios in the world.

The International Monetary Fund is currently working with Lebanon to resolve its economic crisis but has yet to make a breakthrough, its managing director Kristalina Georgieva said last month.

“All I can say is that we are putting our best people to work with Lebanon, but we do not yet have a reason to say there is a breakthrough,” she said.

Lebanon asked the IMF for a loan of at least $10bn in May. The country’s gross domestic product is set to contract 12 per cent this year, the fund said.