PMI Rises Above 50.0 in August To Highest Level In Over Nine Years

The contraction in the private sector’s economy seemed to have pulled the brakes during this summer. Economic indicators already point out to sustained signs of enhancement in private sector operating conditions while business activity largely has settled all over Lebanon. Without doubt, strong rebound in tourism activity drove the recovery in private consumption in addition to a substantial improvement in private consumption largely supported by higher tourist spending, local residents and remittance inflows.  However, at the same time, unfavorable political environment persisted during this cautiously optimistic summer for Lebanon as well as higher inflation and uncertain recovery path. On a different note, S&P ratings affirmed the SD/SD (selective default) foreign currency ratings and our CC/C local currency ratings on Lebanon with a negative outlook on the long term local currency rating to remain. In the same token, Fitch ratings also affirmed Lebanon’s long term foreign currency Issuer Default rating (IDR) at Restricted Default and the country’s long term local currency IDR at CC. The rating of these agencies indicated that Lebanon’s outlook remains uncertain following doubtful expectation concerning the Government’s implementation of the preconditions requested by the IMF. Nevertheless, the next presidential election and persisting political deadlock and State dysfunction impose an unknown timeline for recovery. Crucially, however, we believe this summer is truly an achievement for the country’s economic situation and it made us realize the existing structure of the Lebanese economy which is divided by two major sectors; a private one presented by the power of the Lebanese people to overcome any obstacles, and a public sector topped by the corrupted elite and a State absence which has hardly succeeded to lead a country and drive it to a “safe harbor”.


Accordingly, the tourism sector looks very different two years after severely affected by shutdowns, travel restrictions and the social unrest erupted since end of 2019. Fortunately, numbers show that recovery has started albeit levels are not the same as before 2020. As such, the data from the Ministry of Tourism showed that the number of incoming visitors witnessed an annual increase of 95.75% reaching 570,738 visitors by June 2022, compared to only 291,570 by June 2021, and 199,722 in the first half of 2020. In tandem, the activity at Rafic Hariri International Airport improved remarkably in the first seven month of 2022. Consequently, the number of Beirut’s International Airport passengers went up by 65.05%, and recorded 3,389,753 passengers by July 2022 compared to 2,053,800 passengers during the same period last year. Total arrivals jumped by 62.39% yearly to stand at 1,764,667 by July 2022 while number of departing passengers climbed by an annual 73.80% to stand at 1.606,160 over the same period. Nevertheless, transit passengers decreased from 42,968 by July 2021 to 18,926 transit passengers by July 2022.

Lebanon is still facing historical high inflation rates driven by high volatility in prices due to worldwide elevated energy prices as well as the devaluation of the national currency. As such, Lebanon’s monthly inflation rate jumped from 100.64% in June 2021 to register 210.08% in June 2022. In details, the cost of “Housing and utilities”, inclusive of water, electricity, gas and other fuels (grasping 28.5% of the CPI) added a yearly 132.28% by June 2022. Also, “Owner-occupied” rental costs increased by 6.21% year-on-year (YOY) and the average prices of “water, electricity, gas, and other fuels” followed a significant increase by 594.46% on a yearly basis as subsidies were removed by the Central Bank and prices went up sharply on the global market due to the war in Ukraine.

Demand for Real Estate remained high driven by favorable market behavior. In turn, Real Estate transactions witnessed an annual increase of 1.65% to reach 39,921 transactions by the month of June 2022. Similarly, the value of total RE transactions stood at $5.75B by June 2022, 2.55% lower compared to $5.91B in the same period last year. In fact, the Real Estate market has been broadly perceived as the safest investment for the Lebanese since the eruption of the economic and financial crisis. Thus far, the demand for owning a real estate in Lebanon remained high but with a slower pace of expansion compared to last year as most vendors have gradually started to request payments to be in fresh dollars, thus checks payments are lesser accepted as a mode of payment and according by having an adverse effect on demand.

In fact, the Real Estate market followed a correction by registering a substantial increase in transactions in the years of 2021 and 2022 mainly driven by post-stagnation period due to the crisis. Demand went up as there was a glut of housing available in the market and no loans and facilities; prices dropped due to less demand in the market which stimulated the consumers’ behavior. However, favorable increase in demand would push prices a bit higher and thus would cool down the market.

In terms of the balance sheet of Banque du Liban (BDL), the central bank’s total assets added 5.96% compared to last year, to reach $169.28B by the end of August 2022. The increase was mainly due to the 25.79% year-on-year (YOY) rise in other assets, grasping 42.03% of BDL’s total assets and reaching $71.14B by end of august 2022. Nevertheless, the gold account, representing 9.45% of BDL’s total assets, recorded a drop of 4.42% YOY to reach $15.99B by the end of August 2022. Meanwhile, BDL’s foreign assets which grasp 8.71% of total assets recorded a decrease of 24.65% YOY and 17.29% YTD; however, it registered a drop of $424.54M during the month of August to stand at $14.74B by end of the month though $5B of those are in Lebanese Eurobonds which indicates that BDL’s Foreign Assets without Eurobonds dropped below the $10B for the first time. On a different note, total volume of dollars injected into the market through Sayrafa for the month of August totaled $742M while the foreign assets of BDL dropped by $424.54M for the same period. Hence, despite that the Central Bank was taking measures to maintain the exchange rate of the parallel market, crucially, however, this measure has proven to be very costly as BDL started to limit the support of fuel purchases through Sayrafa to only 40% of total fuel bills. Not to mention that the drop in the Euro and GBP currencies is likely having its toll on the Central Bank’ foreign assets as BDL holds foreign assets denominated in Euro and GBP.

The data published by the association of Lebanese Banks’ showed that the total number of cleared checks in the Lebanese financial system slumped from 2,158,475 checks by July 2021 to 1,123,318 checks by July 2022. Consequently, the value of total cleared checks decreased yearly by 19.05% to reach $19.34B by end of July 2022. In more details, the value of checks in LBP increased remarkably from $11.07B by July 2021 to reach $12.69B by July 2022, while value of checks in foreign currencies decreased significantly by 48.17% year on year (YOY) to reach $6.64B by July 2022. Accordingly, the dollarization rate of checks in terms of value declined from 53.67% in July 2021 to settle at 34.37% by July 2022. In the same token, the dollarization rate of checks in terms of volume fell by July 2022, to reach 47.81% instead of 53.64% by July 2021.

Moreover, data released by the Ministry of Finance (MoF) recently indicated that Lebanon’s gross public debt hit $101.07B in April 2022, thereby recording an annual increase of 3.4%. The rise is mainly attributed to the annual increase in both local and foreign currency debt by 0.97% and 7.37%, respectively. In fact, domestic debt constituted 60.84% of the total public debt and totaled $61.49B calculated on the official rate of 1507.5 and $2.89B once calculated on the parallel market rate of LBP/USD 32,000, whereas the foreign debt constituted 39.16% of the total public debt and amounted to $39.58B.

It is worth noting that BOP recorded a deficit of $2.78B by July 2022, compared to a deficit of $1.77B over the same period last year. Accordingly, Net foreign Assets (NFAs) of BDL fell by $3.01B, while the NFAs of commercial banks added $227M by July 2022.

As for Lebanon’s consolidated commercial banks’ balance sheet, total assets decreased by 2.11% YTD and 5.19% YOY to stand at $171.25B by July 2022. In more details, deposits in foreign currencies (73.49% of resident customers’ deposits) decreased by 4.69% YTD to reach $97.20B by July 2022, while deposits in LBP (26.51% of resident customers’ deposits) increased notably by 12.77% YTD to stand at $29.29B by July 2022.


Amid these developments, BLOM Lebanon PMI registered fractional signs of expansion for the month of August with the index recording a minor uptick above the 50.0 threshold, reaching 50.1 in August, from 49.9 in July, and the highest over nine years. The index rose gradually during the summer with a slight improvement in private sector operating conditions across Lebanon. Business activity roughly alleviated, backlogs of work increased while employment and new order intakes slightly dropped. In comparison with the Eurozone and major economies worldwide, Lebanon’s PMI shockingly recorded higher marks than the 49.6 Eurozone Manufacturing purchasing managers’ index in August compared to 49.8 in July and 61.4 a year ago. Nevertheless, for Lebanon, the countdown to presidential elections is looming, time is against the leaders as forming a Government is key to stick to the political agenda, such as the demarcation of marine borders and the final agreement with the IMF. Despite this notable improvement, business activity in Lebanon is set to decline in the upcoming period amid the challenging political outlook and its impact on the country’s recovery path, not to mention the end of the tourist season. The outlook remained pessimistic towards the coming year, indicating uncertainty for a long-lasting stabilization for Lebanon and its economy!

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