The June 2019 BLOM Lebanon Purchasing Managers’ Index (PMI) stood at 46.3 in-line with May’s reading, mainly driven by output and new orders indices at less than 44. Meanwhile, economic growth remains subdued, hovering between 0% to 0.5%.
Fiscal Dynamics: Deterioration
The latest figures on Lebanon’s fiscal performance reflected a substantial $6.3B deficit in 2018. This deficit is the highest witnessed since 2010 according to the records of the Ministry of Finance, as it amounts to approximately 10.9% of GDP, noting that 2017’s fiscal deficit stood at $3.8B. The latest deterioration of the country’s fiscal dynamics was underpinned by a 16.21% annual growth in government spending to $16.4B (28.44% of GDP) by December 2018 while public revenues retreated to $10.74B or 18.67% of GDP over the same period.
BOP Deficit: Larger
Lebanon’s balance of payments (BOP) deficit expanded to $3.3B by April 2019 from a deficit of $773M last April. Actually, the large BOP deficit of $1.3B registered in April 2019 alone was close to January 2019’s deficit of $1.38B which resulted from prolonged delays to endorse the proposed draft budget. It followed that Commercial banks’ consolidated balance sheet revealed Total resident & non-resident customer deposits lost 1% year-to-date (YTD) to stand at $171.4B in the first four months of 2019. Meanwhile, loans to resident & non-resident customers lost 4% YTD to stand at $56.5B by April 2019. In turn, BDL’s Total assets and Foreign assets recorded downticks of 10.9% and 4.3% YTD to $37.97B and $31.5B, respectively, as the central bank netted its operations, between “Loans to the local financial sector” and “Financial Sector Deposits” in accordance with IFRS 7.
Financing Channels: Slower
Two interesting figures in the environment leading up to June’s PMI results are checks and Kafalat loan guarantees. In details, the number of loan guarantees granted by Kafalat dropped to 37 loans valued at $4.42M by May 2019, down from 179 guarantees worth $23.12M in the same period last year. In their turn, the number and value of cleared checks fell to $23.41B by May 2019, retreating by an annual 15.47% as per the Association of Banks. It followed that the total number of cleared checks lagged by 13.9% year-on-year (YOY) to 4.26M while the number of returned checks amounted to 111,032, exceeding last year’s 109,966.
Sectoral Slow Downs
In turn, Lebanon’s real estate and construction activity remained subdued by May 2019. In fact, the number of real estate (RE) transactions dropped by a yearly 16.22% to stand at 19,024 transactions over the period, while the value of total RE transactions stood at $2.44B, down by an annual 24.41%. By the same token, data from the orders of Engineers in both Beirut and Tripoli revealed an annual 19.2% slump in the total number of construction permits to 4,927 by May 2019 as the corresponding Construction Area Authorized by Permits (CAP) also slipped by 30.58% YOY to $3.05M square meters, reflecting developers’ preference of “smaller projects”.
The car market revealed a 19.87% YOY slump to taking the number of new registered cars to 11,162 cars by May 2019. The Association of Lebanese Car Importers attributed the sector’s sluggish performance to myriad factors, including the environment of higher interest rates and uncertainty on the political and economic fronts.
Tourism: Promising Growth
Despite lagging macro indicators, the growth on the tourism front continues to give hope. The rigorous tourism activity materialized in an elevated Occupancy rate which substantially increased by 13.2% percentage points (PP) to 73.7% by April 2019, pulling up the 4-and 5-star hotels’ Average daily rate to $193 by April 2019 from last year’s $174, as well as lifting the Revenue per available room from $142, instead of $105 by April 2018. In fact, the total number of passengers climbed by 4.43%YOY to 2.57M travelers by April 2019. Meanwhile, the latest number of tourist arrivals added 5.5% YOY to hit an 8 year high of 692,704 tourists by May 2019 which lagged behind the record-figure of 732,855 tourist arrivals by May 2010 noting that 2010 was the golden year of tourism in Lebanon.
The proposed austerity budget continues to spur uncertainty in the market while growth remains subdued, supported mostly by the tourism sector. As such, the PMI remains below the 50 mark which indicates the hindered environment and activity of the private sector.
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