Lebanon recorded its longest presidential deadlock since independence with more than a year without a president of the republic. Yet, the security situation remained stable, despite few clashes on the borders. This has led to an uneven improvement in some sectors of the economy.
The International Monetary Fund (IMF) expected economic growth rate to increase from 2% in 2014 to 2.50% in 2015. However, the BLOM Purchasing Managers’ Index remained below the 50 mark, at an average of 48.8 points in the second quarter (Q2) of 2015, compared to a higher average of 49points in the first quarter of 2015.
Lebanon experienced a deflation in the H1 2015 as consumer prices declined by 3.37% y-o-y, after Brent crude oil price reached a 5Y minimum end of January. The Consumer Price Index stood at 97.22 points end of June, mostly due to the 18.66% and 9.26% drops in its 2 major sub-indices “water, electricity, gas & other fuels” and “transportation”, respectively.
As for the real-estate sector, total transactions (local and foreign) stood at 28,722, recording a14.97% yearly drop and amounting to $3.59B by the end of June 2015. In contrast, figures revealed that foreigners’ share of total real estate transactions went up yearly from 1.51% to 2.33% by June 2015. This improvement probably came about as security developments eased during the first five months of 2015, which positively impacted tourism activity and foreign investors’ sentiment.
Likewise, construction was worse off, with the number of permits declining 15.87% y-o-y to 7,387 by June. Noting that permits are usually issued at least 6 months after applications are filed, the fall in construction activity was due to the declining drift in demand that has started in 2011 following the eruption of the Arab spring.
The stable Lebanese security scene in 2015 has played in favor of the tourism sector despite the ongoing political deadlock. According to the Ministry of Tourism, the number of tourist arrivals rose by a yearly 14.72% to 671,393 in H1, 2015. Tourist spending in Lebanon grew 7% y-o-y during the same period, according to Global Blue. Consequently, hotel occupancy improved, with the average rate adding 6 percentage points to 56% by June. Average room rate and average room yield gained 4.56% and 17.06% to $176 and $99, respectively.
Despite the positive balance of payments (BoP) of April and May, the improving tourism activity, and the contracting trade deficit, Lebanon’s BoP remained in the red for the first six months of 2015, recording a deficit of $1.23B, compared to a surplus of $215.7M, in the same period last year. The reason could be a slowdown in expatriates’ transfers due to domestic political tensions and to current economic conditions in the GCC countries following the decline in oil prices. A drop in portfolio investments and FDI contributed to the negative BoP.
Nevertheless, Lebanon’s trade deficit dropped by 18.78% y-o-y by June 2015 to record $7B due to a 16.77% decrease in overall imports outpacing the 6.34% decline in total exports. This was mainly contributed by the prominent trend of the depreciating Euro and falling international oil prices, over the same period. Worth noting that due to the heavy clashes between rebels and Syrian government forces that forced the closure of the Nassib crossing between Syria and Jordan in April, 900 tons of agricultural produce was wasted each day. Hence, the Cabinet allotted $21M for the export of agricultural products, where truck owners would be granted $2,000 per trip to help them take the marine route instead of the traditional used land roads.
Shifting to the fiscal sector, gross public debt (GPD) climbed 7.06% y-o-y to reach $69.46B or 146.24% of Lebanon’s GDP by April 2015. Moreover, fiscal deficit widened 26.43% yearly to $1.06B in the first quarter of 2015, with a primary deficit of $138.04M compared to a primary surplus of $38.2M, during the same period of 2014. This came as a result of a 14.07% decrease in total revenues outstripping the 3.65% downtick in total expenditures. The drop in revenues was driven by a 12.06% decrease in VAT revenues, while the main decrease in expenditures came as a result of the 39.89% plunge in EdL transfers.
The monetary front remained one of the most important pillars of the economy, as BDL’s total assets increased 2.07% q-o-q, to stand at $90.68B by the end of Q2 2015. Likewise, its foreign currency reserves inched up 1% during the same period to $38.86B. Total assets of commercial banks posted a 2.50% increase since year start, to $180.08B by June. Resident private sector deposits progressed by 2.44% to $116.90B in H1 2015.
The Beirut Stock Exchange retreated in the second quarter of 2015, where the BLOM Stock Index (BSI) dropped 3% from Q1, to 1,189.31 points end of June, 2015. Trade occurred at a lower average volume of 168,932 shares worth $1.70M, compared to 262,596 shares worth $2.01M, the previous quarter. Market capitalization narrowed from $10.32B to stand at $10.01B at the end of the first half of 2015.