Lebanon: Failing to Fully Recover Amid Political Deadlock

As the political situation remained unstable in Lebanon, the country observed fluctuations in its economic indices and geopolitical dynamics.  Lebanon recorded its lowest levels in several different sectors.

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In specific, Lebanon’s PMI registered 44.4 in Q2 2016 compared to 49.3 in Q2 2015, which is well below the neutral 50.0 threshold. Also, the index’s average of 44.4 over the second quarter of 2016 was the lowest since the survey’s inception as of May 2013.

As for consumer prices, monthly consumer price index (CPI) report showed a 2.51% yearly decrease, to reach an average of 97.62, compared to the 1st half of 2015. This decline was mainly due to the drops in the CPI’s sub-indices: 14.53% plunge in “water, electricity, gas & other fuels” and 1.87% fall in “Food and non-alcoholic beverages.” This y-o-y downswing can be attributed to the 21.09% annual drop in oil prices and overall food prices, where the average FAO food price index indicated a 10% decrease by June 2016 compared to the same period in 2015.

For the real estate sector, transactions rose by 4.43% y-o-y to reach 39,100 by Q2 2016. In depth, land transactions displayed a growth of 4.18% to reach 19,566 transactions, built units increased by 4.68% to 19,534 transactions, and the average value of land transactions rose from $102,835 to $104,267 by Q2 2016. In contrast, foreigners’ share of the total real estate transactions fell from 2.01% by Q2 2015 to 1.48% by Q2 2016. The improvement in the real estate sector is due to two main factors, the low base reached during 2015 and the decline in prices observed in the past two to three years.

Moreover, construction activity improved whereby the number of permits witnessed a yearly increase of 13.82% to reach 8,408 in H1 2016 compared to 7,387 by Q2 2015. Noting that permits are usually issued at least 6 months after filing the application, construction activity rose after reaching a significantly low number by June 2015, mainly due to the improving political situation.

In regard to tourism, the total number of tourists increased by a yearly 7.7% to 723,105 by Q2 2016. However, the mentioned sector witnessed a downturn in the first half of the year. In details, occupancy rates fell 3 percentage points from 57% by June 2016 to 54% by June 2016, also the average room fell from $164 by June 2015 to $135 by June 2016, the worst performance in the region. As such, according to Global Blue, tourist spending in Lebanon dropped by 18% y-o-y in Q2 2016. This slow performance of the tourism sector can be justified by the slow economic activity in GCC and by the warnings spread by their governments on visiting Lebanon. 

Lebanon’s balance of payments observed a $ 1.77B deficit by June 2016 compared to a deficit of $1.32B by June 2015. Given the weaker economic activity in oil dependent Arab countries, FDIs and remittances witnessed a drop where, FDI inflows in Lebanon fell by 19.44% in 2015. Also, trade deficit increased 9.72% from $7.23B to $7.93B, where imports increased 7.00%, while exports fell 5.67% by June 2016.  

On the monetary side, BDL’s total assets increased 9.09% y-o-y to reach $99.1B end of Q2 2016. As such, gold reserves increased annually by 12.29% end of Q2 2016 compared with end of Q2 2015; however, foreign assets decreased to $36.27B, 2.21% less than their value end of 2015.

The BSI witnessed a drop of 3.32% q-o-q from 1,189.31to 1,149.79. Conversely, trade volume ticked up from 9,966,972 shares in Q2 2015 to 10,370,261 shares in Q2 2016, yet the trade value decreased by 11% to $89.27M. Also, market capitalization shrank from $9.71B to $9.54B by June 2016.

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