Faster Deterioration of the BLOM Lebanon PMI: Down to 46.3 in May 2019

The BLOM Lebanon Purchasing Managers’ Index (PMI) slipped from 46.7 in April 2019 to 46.3 in May 2019, owing it to sharp deteriorations in output and new orders.

Discussions on the 2019 government budget began on April 30th, so the month of May witnessed more than 20 consultations as the cabinet attempted to finalize a draft state budget. Most of the proposed austerity measures sparked social rioting, namely a 3-day strike by BDL employees and public employees to protest against potential cuts to their salaries and allowances. Against this backdrop, the inter bank rate climbed from an average of 10% in the first week of May, to 32% in week 2 (when BDL strikes occurred), and the average rate settled at 16.13% by the end of the month.

Multiple macroeconomic indicators further justify the deteriorating operating conditions of the private sector in-line with May’s PMI. The country’s debt burden stood at $86.2B in Q1 2019, while the trade deficit widened by an annual 2.46% to $4.09B over the same period. In turn, Lebanon’s car market revealed a sharp yearly decline of 21.16% in the number of new registered passenger and commercial cars to 8,601 cars by April 2019. The Association of Lebanese Car Importers (AIA) in fact attributed the sector’s hampered performance mainly to “the dramatic economic and political situation prevailing in the country”, as well as the environment of higher interest rates which discouraged car loans and proved costly for car companies, thus hindering their growth.

In turn, the number of Kafalat loan guarantees dropped from 138 guarantees by April 2018 to only 30 loans by April 2019. The overall value of the guarantees also plunged from $18.19M by April 2018 to reach $3.53M by April 2019. In addition, the value of cleared checks fell to $19.26B in the first four months of 2019, down by an annual 12.97% as per the Association of Banks. The total number of cleared checks also fell by 11.53% year-on-year (y-o-y) to 3.48M by April 2019. Meanwhile, the number of returned checks totaled 88,933 over the same period, up from 85,759 by April 2018.

On another front, new data confirmed the ongoing slowdown in Lebanon’s real estate and construction sectors. In fact, the total number of construction permits fell by a yearly 22.14% to 3,815 by April 2019, while the Construction Area Authorized by Permits also slipped by an annual 32.42% to $2.40M square meters. In their turn, the number of real estate (RE) transactions reached 15,726 transactions by April 2019, down from 17,651 by April 2018 while the value of total RE transactions stood at $2B, contracting by 16.20% y-o-y. Even though Lebanon’s inflation rate stood at 3.61% by April 2019, down from 5.47% in the first four months of 2018, it remains high compared to the 3.47% deflation recorded by April 2015.

However, a bright spot in the Lebanese economy is the tourism sector. In details, the number of airport passengers recorded a 1.31% annual growth to hit 1.75M travelers in Q1 2019. It followed that the occupancy rate of Beirut’s 4- and 5- star hotels rose from 57.9% in Q1 2018 to 69.8% in Q1 2019. Annual upticks were also registered in Beirut’s average room rate and rooms yield, which climbed from $173 and $100 in Q1 2018 to $189 and $132 in Q1 2019, respectively.

The proposed austerity in the final state budget draft raised to parliament for endorsement by end-May 2019 spurred instability on Lebanon’s political and economic fronts. The month’s budget developments left investors and local businesses uncertain. They also capped the PMI below the 50 mark, recording faster deterioration in the private sector’s performance for May 2019.


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