Operating Conditions Deteriorate further: PMI Little Changed in August 2019

The BLOM Lebanon PMI stood at 47.8 in August 2019, little-changed from July’s 47.7 score, indicating an annualized growth rate of the economy by 0-0.5%. The score reflects the ongoing operating difficulties facing the private sector, as interest rates continue to increase and loans to the private sector remain in a contracting mode.  

August 2019 carried multiple shocks to the Lebanese economy and put the Eurobonds market particularly under scrutiny by investors. Some of the national developments included Fitch Ratings downgrading Lebanon rating to CCC from “B-“ on Aug. 24th, while S&P’s global rating agency announced a 6-month grace period before changing its current ratings at “B-/B” with a negative outlook for Lebanon. The anticipation and the news itself then sent the 5Y Lebanese CDS during the month to highs of 1,231 basis points (bps) by Aug. 30th and averaged 1,112 bps throughout the month. In the meantime, Yields on the short-term Lebanese Eurobonds maturing in 2021 (2Y) and the longer term bonds maturing in 2035 (16Y) and 2037 (18Y) climbed from 12.98%, 10.44% and 10.34% beginning August, to hit highs of 19.97%, 11.8% and 11.76%, respectively, by Aug. 30th 2019.   

On the monetary front, BDL managed to replenish its foreign assets and partly boost confidence in the economy. From mid-July 2019, BDL added $1.7B to its foreign assets which settled at $38.7B by end-August 2019.

On the fiscal front, Lebanon’s public debt grew while the fiscal deficit narrowed. In details, the gross public debt added a yearly 3.4% to hit $85.73B by June 2019. Meanwhile, the fiscal dynamics as per the Ministry of Finance revealed Lebanon’s cash-basis fiscal deficit narrowed from $3B in H1 2018 to $2.42B in H1 2019.

In turn, the main macro-economic parameters continued to reflect a slowdown. The latest data by the General Directorate of Land Registry and Cadastre revealed the number of Real estate transactions slid by a yearly 23.54% to 25,384 transactions by July 2019. The value of total RE transactions correspondingly stood at $3.02B, contracting by a yearly 33.63% over the same period. Moreover, figures by the Orders of Engineers in Beirut and Tripoli showed the total number of construction permits fell by a yearly 16.41% to 6,947 by July 2019 as the Construction Area Authorized by Permits also slipped by an annual 27.85% to $4.09M square meters. The Lebanese car market continued to face difficulties, with the number of registered commercial and passenger new cars shrinking by a yearly 23.6% to 16,988 cars by July 2019 in-line with in-line with “the dramatic economic and political conditions”, as per the Association of Lebanese Car Importers (AIA). The number of Kafalat loan guarantees as well contracted from 257 guarantees by July 2018 to 42 loans by July 2019 whereby the total value of issued loan guarantees slumped from $33.6M by July 2018 to $4.7M by July 2019.

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