BLOM PMI: Private Sector Operating Conditions Continue to Decline by mid-October 2019, but the Repercussions of the National Protests Are Yet to Emerge

The BLOM Purchasing Manager’s index (PMI) rose in October on a monthly basis reaching 48.3 to indicate economic contraction at a slower pace, when compared to September’s score of 46.4. However, October’s results were based on survey respondents collected by the 17th of the month. Therefore, they exclude the business closures & interrupted operations of private sector companies upon the onset of the national protests in Lebanon.

Partial repercussions of the wave of national protests emerged on BDL’s balance sheet by end-October. Fourteen days after the onset of demonstrations, the central bank’s total assets dropped by 2.76% since December 2018 to settle at $136.72B by October 2019, with BDL’s foreign assets (gasping 27.7% of its total assets) declining by 4.37% (or by $1.77B) year-to-date, to reach $37.93B over the same period.

Meanwhile, available economic updates reveal growth in Lebanon remained subdued while inflationary pressures softened. In fact, even before the wave of demonstrations that spread across the country since October 17th, the economy was growing at stifled growth rates of 0% – 0.5%. In its turn, average inflation rate eased to 2.77% by august 2019, compared to 6.29% in the same period last year according to the Central Administration of Statistics, mainly owing it to a 10.7% annual downtick in oil prices to $64.8/barrel.

Real estate and construction, a prime growth driver to the nation, was also weak with no developments in regards to the promised CEDRE money to-date. According to Cadastre, the number and value of real estate transactions fell by an annual 14.6% and 18.9%, respectively, to stand at 36,952 transactions worth $4.7B in Q3 2019. In turn, data by the Orders of Engineers in Beirut and Tripoli revealed the total number of construction permits contracted by a yearly down tick of 13.9% to 8,998 over the same period. 

 Meanwhile, the balance of payments (BOP) deficit remains substantial and fed by a large trade deficit. The cumulative BOP deficit reached $4.4B in the first 8 months of the year, up from $1.2B in the same period last year. As for the trade deficit, it widened to settle at $11.37B by August 2019, contracting by 3.1% compared to the same period last year such that total imports added an annual 0.88% to stand at $13.84B while exports increased by 24.36% year-on-year to $2.47Bby August 2019.

The latest available fiscal data showed Lebanon’s fiscal deficit narrowed. The cash-basis deficit stood at $2.4B by July 2019, down from $3.07B recorded by July 2018. In details, government spending fell by a yearly 7.66% to $8.64B while public revenues added 0.22% to reach $6.68B.

Meanwhile, the country’s high public debt includes $1.5B maturing on 28/11/2019. Gross public debt grew by an annual 3.1% to $86.3B by August 2019. It is worthy to note that $6.5B of foreign debt will mature between this year and 2020. The payments due are expected to decrease BDL’s foreign assets in November 2019 by the amount of maturing Eurobonds, yet the impact on the central bank’s foreign currency reserves will remain limited as the central bank has already bought a substantial amount of these maturing bonds in the secondary market a few months ago.

 The full materialization of the impact of protests on the country is expected to weigh down on growth. According to BLOMInvest bank’s 2018 study, the PMI is a predictive power for economic growth. Therefore, we expect November’s PMI to capture the full impact of the private sector’s disrupted activities since mid-October.


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