BLOM Lebanon PMI: PMI slides to nine-month low in November

Month of November posed uncertainty to the situation in Lebanon. New Lebanese-GCC diplomatic crisis erupted when several Gulf countries recalled their ambassadors and Saudi Arabia, a key export market for Lebanon, banned imports of Lebanese products. This crisis has aggravated tensions within the new Cabinet as well as weighed on the Lebanese manufacturing and tourism sectors while it reduced the prospects of any financial aid from Gulf to Lebanon. Furthermore, according to Fitch Solutions, short-term political risk index of Lebanon dropped from 36.9 to 35.0 indicating higher political risk. Moreover, political and sectarian tensions related to the investigation into August 4 Beirut Blast remained eminent. As for the national currency, it further depreciated during this month to end the period at LBP/USD 24,700 pushing inflation higher and unemployment above 40%.

Lebanon’s Consumer Price Index (CPI), which gives an overview about the evolution of goods and services’ prices consumed by households, revealed that Lebanon’s monthly inflation rate jumped from 136.8% in October 2020 to reach an all-time high of 173.57% in October 2021. The average inflation rate by October 2021 reached 137.04%, higher than the average inflation rate of 73.20% over the same period in 2020. Looking at the prices of “Transportation” (13.1% of the CPI), it surged by 508.23% yearly backed by the removal of subsidies on fuel and further depreciation of the national currency.

However, the real sector demonstrates noteworthy notwithstanding the current challenges in Lebanon. As such, construction permits witnessed an annual increase of 66.18% to reach 11,827 permits by September 2021. Notably, the Construction Area Authorized (CAP) soared by a yearly 100.38% to 5,732,317 square meters (sqm), largely reflecting the high interest of investors in real tangible assets. Furthermore, the Real Estate transactions also went up by an annual 28.87% to reach 58,053 transactions by August 2021. In its turn, the value of total Real Estate transactions stood at $8,575.8M by August 2021, compared to $8,389.1M in the same period last year.

Moreover, latest statistics on activity at the port of Beirut revealed a remarkable decrease of 29.59% in the revenues of the Port of Beirut (PoB) to $7.578M by September 2021, compared to last year’s $10.76M. This annual contraction took place despite the low productivity of the PoB in September 2020, the month after the massive Beirut explosion. Worth mentioning also that the number of Beirut’s International Airport passengers went up by 72.48%, as it registered 3.52 million (M) passengers in October 2021 compared to 2.04M passengers during the same period last year. Data showed that total arrivals added 82.14% on annual basis to stand at 1.67 million by October 2021, while number of departing passengers climbed by a yearly 69.10% to hit 1,787,678 over the same period.

According to Banque du Liban (BDL) balance sheet, the central bank’s total assets added 4.52% compared to last year, to reach $163.45B by mid of November 2021. The increase was mainly due to the 28.97% year-on-year (YOY) rise in other assets, grasping 37.15% of BDL’s total assets and reaching $60.72B by mid of November 2021. Meanwhile, the gold account, composing 10.52% of BDL’s total assets, slightly decreased by 0.84% yearly to reach $17.19B by the same period. Moreover, BDL’s foreign assets decreased by 27.12% YOY to stand at $18.40B by mid of November 2021. Furthermore, the currency in circulation outside of BDL increased by 56.90% soaring from $18.09B by mid of November 2020 to $28.38B mid of November 2021.

Latest data by the Ministry of Finance indicated that Lebanon’s gross public debt hit $98.19B in July 2021, thereby recording an annual increase of 4.7%. In more details, debt in local currency (denominated in LBP) stood at $60.71B in July 2021, total debt denominated in foreign currency (namely in USD) reached $37.48B over the same period. Moreover, Lebanon’s fiscal deficit (cash basis) stood at $288.16M by May 2021, down from last year’s $1,998.5M. In detail, the government revenues (including treasuries) added 16.87% on yearly basis to stand at $4,416.58M by May 2021. On the counterpart, total expenditures (including treasuries) retreated yearly by 18.57% to $4,704.75M by May 2021. It is worth noting that the primary balance which excludes debt service posted a surplus of $404.28M, compared to a deficit of $791.92M during the same period last year.

On 19 November 2021, Bank Audi published its non-audited financial results for third quarter of 2021. Audi financial results show that assets stood at $27.96 B after recording $35.43 B at end of 2020, while deposits decreased from $21.53 B to $20.84 B and loans retreated from $6.14 B to $5.26B. In term of net profit, Bank Audi incurred losses amounted for $107.33 M at end of Q3 2021, compared to nil in same period last year, and noting that $52.31M were made in  net profits from the Bank’s discounted operations.

Additionally, data published by the Association of Lebanese Banks revealed that total number of cleared checks in the Lebanese financial system slumped from 4,955,345 checks by October 2020 to 2,745,805 checks by October 2021. Moreover, the value of total cleared checks declined yearly by 31.72% to stand at $30.82B by October 2021. Accordingly, the dollarization of cleared checks in terms of value went down from last year’s 63.87% to 51.09% by October 2021. Contrarily, the dollarization rate of checks in terms of volume rose from last year’s 50.71% to 52.26% by October 2021.

On the whole, Lebanese private sector experienced severe downfall in economic conditions. In turn, the BLOM-PMI index fell to 46.1 the lowest in 9-month. With the financial crisis in the country, foreign reserves depletion and restricted business opportunities and most importantly the Lebanon-GCC diplomatic crisis, the political outlook is loaded with uncertainty. In turn, the country badly needs large rescue package to rebuild foreign reserve and place the economy on the right recovery path as the year of 2022 is loaded with expected worsening business conditions and a busy electoral calendar.

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