The below-zero growth persisted during December 2019 and continued to be driven by November 2019’s sharpest deterioration in the private sector’s health. With a PMI standing at lows of 37 points in November 2019, economic growth lagged behind to close the year 2019 at approximately -0.5%. In its turn, December’s PMI registered a recovery from November’s all-time low, to stand at 45.1 points. However, it is worthy to note that the average PMI in 2019 retreated to 45.9 points, down from last year’s average of 46.3 points. As such, output and new orders remained most afflicted, standing at the respective 41.3 and 41.1 points, up from last month’s all-time low of 25.3 points each. Nonetheless, these sub-components remain subdued, weakening the private sector’s health amid continued national and regional political uncertainty.
In fact, BDL issued a new circular beginning December 2019 in attempts to avert the severe financial crisis, triggering three credit agencies to downgrade Lebanon’s credit and its banks’ as a result. To begin, on December 04th BDL reduced interest rates on deposits and issued a circular that instructed banks to pay the interest on foreign deposits as follows: 50% in Lebanese pounds and 50% in US dollars. These measures are to remain in-place for 6 months. It followed that the central bank’s action triggered further downgrades by 3 rating agencies. Moody’s downgraded the Standalone Baseline Credit of Bank Audi, BLOM bank and Byblos bank from Caa2 to “Ca” on December 11th, explaining that its action is consistent with “[BDL’s recent Circular which] constitutes a deposit default based on the agency’s own definitions.” Moreover, Fitch Ratings downgraded Lebanon’s long-term foreign currency Issuer Default Rating (IDR) from CCC to “CC” by December 12th. The credit agency explained the mounting financial pressure on Lebanon as derived from the “ongoing political volatility […]; eroding confidence in the banking sector […]”; BDL’s Circular which indicates the central bank is “failing to pay its obligations in full […] intensifying financial pressure[…]”, among other factors. It concluded, “a government debt restructuring or default is probable […]”. Lastly, S&P Downgraded Lebanon’s foreign and local-currency Issuer Credit Ratings to “Selective Default” on 3 Lebanese Banks (Audi, BLOM, BankMed) and Revised Lebanon’s BICRA Score Downwards on December 18th.
On the macroeconomic front, key parameters published over the period reflected a deepening recession.
The capital controls are still in place and continue to nurture a parallel market and rising inflation. The capital controls imposed by banks following the onset of civic protests in October 2019 are still in place, while average inflation reached 2.45% year-on-year (YOY) by October 2019. Even though inflation is still below October 2018’s 6.31%, it is expected to record upticks in the ensuing months of 2020, especially with capital controls staying in place.
Lebanon’s fiscal deficit narrowed by October 2019, yet gross public debt continued its uptrend. The cash-basis fiscal deficit decreased from $4.73B by October 2018 to $4.02B by October 2019. The detailed data provided by the Ministry of Finance revealed an 8.57%YOY down tick in total government spending (including treasuries), which outweighed the 5.49% annual downtick in public revenues (including treasuries) to stand at $13.4B and $9.38B, respectively. On the counterpart, Lebanon’s gross public debt increased by 3.6%YOY to reach $87.09B by October 2019. In details, local currency debt (denominated in LBP) climbed by a yearly 12.2% to $54.57B. Correspondingly, domestic debt composed 62.66% of gross public debt, up from last year’s 57.88% of total, by October 2018. Meanwhile, total debt denominated in foreign currency fell by 8.11% year-in-year (YOY) to amount to $32.52B over the same period.
Key real sector parameters of the economy also reflected the significant uncertainty which was very apparent among this month’s PMI panel and respondents. The construction and real estate sectors were among the most afflicted by the financial and economic developments following October’s protests. As such, the total number of construction permits slumped by an annual 19.37% to 10,354 permits by November 2019 while the respective Construction Area Authorized by Permits also dropped by 32.06%YOY to 5.7Msqm. In tandem, the real estate (RE) sector performance remained weak, with the number and value of RE transactions recording the respective annual slumps of 19.24% and 21.52% in the first eleven months of the year, to stand at 44,163 transactions worth $5.7B, down from 54,687 that stood at $7.3B by November last year, as per Cadastre.
In turn, auto importers continued to be substantially affected by the developments since October, given the people’s propensity to postpone expenditures in times of high uncertainty. The car market slumped remarkably, with the Association of Cars Importers (AIA) stating “The number of new cars registered during the month of November 2019 has dramatically dropped by 79% in comparison with the month of November 2018,” as it attributed the dramatic drop to recent procedures regarding capital controls. The total number of new registered cars hit an 11–year low at 22,528 cars. Despite a 12.1% annual drop in international average oil prices to $64.03/barrel, the number of total (passenger and commercial) registered new cars dipped by 31.5% year-on-year (YOY) by November 2019 which was 3.25 times the decrease recorded by November 2018 when the car market recorded the first decline since 2007.
November 2019 also witnessed a large Increase in the total number of Returned Checks. The latest statistics released by the Association of Banks (ABL) on cleared checks within the Lebanese financial system revealed a substantial increase in the month-on-month (MOM) and year-on-year (YOY) number of returned checks, attributed to the closure of banks from October 17th till Nov. 01st and the ensuing capital controls imposed, including ad hoc changes to clients’ overdrafts arrangements with their respective bank(s). As such, on a MOM basis, 81,782 checks worth $319.73M were returned in November 2019, composing 6.17% and 10.16% of the total value and number of returned checks, respectively. In comparison, returned checks in October 2019 totaled 16,427 checks worth $88.9M, thereby composing 2.87% and 3.08% of the total value and number of returned checks, respectively. Meanwhile, in November alone, the total value of cleared checks decreased by 3.5% to $5.2B, owing it partly to a 15.34% yearly down tick recorded in the value of cleared checks denominated in foreign currency to $2.9B. Meanwhile, the value of checks denominated in LP rose by a yearly 13.84% to settle at $2.2B in November 2019.
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