The BLOM Lebanon Purchasing Managers’ Index (PMI) slid from 46.7 in November 2018 to 46.2 in December 2018 and therefore ended 2018 below the average of 46.3 for the year. The PMI readings therefore confirm our estimates that the implied GDP growth will not surpass the 1% mark in 2018.
Political instability remained at the forefront of concerns amongst the surveyed companies as the government formation continues to stall since the last Parliamentary elections in May.
Normally, the month of December is expected to be buzzing with holiday sales yet the PMI results indicated that Lebanese private sector companies saw the sharpest decrease in new orders since September and the fastest fall in new orders for three months.
Fiscal imbalances remain sizeable. According to the Ministry of Finance, Lebanon’s fiscal deficit expanded from $2B by September 2017 to $4.50B by September 2018. In fact, fiscal revenues witnessed an annual increase of 3.16% to reach $8.67B while the government spending (including treasury transactions) rose by a yearly 26.16% to stand at $13.18B. Lebanon’s overall primary balance which excludes Lebanon’s debt service posted a deficit of $590.89M, compared to a surplus of $1.63B by September 2017.
As the fiscal deficit continues to swell so is the country’s Gross Public Debt. According to the Ministry of Finance, Lebanon’s gross public debt reached $84.02B by the tenth month of the year, adding an annual 7.07%. This increase is mainly owed to the rise in foreign currency debt. In details, local currency debt grasped a stake of 57.88% of total gross debt and recorded an annual 1.71% downtick to stand at $48.63B by October 2018. On the contrary, foreign currency debt rose significantly by a yearly 22.06% to settle at $35.39B, equivalent to 42.12% of Lebanon’s gross public debt. As for the net public debt, this excludes public sector deposits at commercial banks and BDL, it increased by 8.83% year-on-year to reach $74.14B at the end of October 2018.
Inflation was still rising as a result of high oil prices and the increase in the salaries for public sector employees. According to the Central Administration of Statistics (CAS), the average inflation rate of Lebanon stood at 6.26% by November 2018.
In details, the average price of “Housing and utilities” (Housing water, electricity, gas and other fuels) constituting a combined 28.4 % of the CPI, witnessed a yearly rise of 7.05%. “Owner-occupied” rental costs (grasping 13.6% of this category) and “Water, electricity, gas and other fuels” (grasping 11.8% of this category) rose by 3.94% y-o-y and 11.22% y-o-y, respectively . Also, the average costs of “Food and non-alcoholic beverages” (20% of CPI) rose by a yearly 5.07% by November 2018. As for the average prices for “Transportation” (13.6 % of CPI), they increased by 8.57% y-o-y, and this can be mainly due to the significant rise in average oil prices by a yearly 35.45% to reach $72.87/barrel by November 2018.
The Balance of Payments registered a substantial deficit by November 2018. According to the Central Bank of Lebanon, the balance of payments recorded a deficit of $4.08B by November compared to a deficit of $1B by the same period last year. In fact, the NFAs of the Central Bank and commercial banks dropped by $1.08B and $3B respectively, over the same period. As we head into the New Year, political stability remains inevitable in order to begin turning the economy around and especially to keep confidence levels in check.
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