In this report, we will provide an overview on Lebanon’s Eurobond market, in addition to a brief review of the US, Japan, Emerging and EU markets in 2022. Indeed, last year had been a year full of uncertainties and challenges, as global economic activity experienced a sharper than expected slowdown and record high inflation. The cost of living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic have caused shockwaves across the world. Three big shocks essentially happened in 2022.
First, on February 24, 2022, the Russian military invaded Ukraine, creating global upheaval, conflict and unrest blighting all parts of the world. In fact, global fuel and food prices soared and the war was the main contributing factor to projections of a global economic downturn, in a world still reeling from the consequences of the Covid-19 pandemic.
Second, China employed a “Zero Covid-19 policy” in an effort to fight COVID-19 and keep cases as close to zero as possible. To that effect, the country implemented mass testing, quarantined the sick in government facilities and imposed strict lockdowns that can span entire cities. As China chose health over wealth, its own economy continuously suffered due to the prolonged shutdowns, adding to the fact that the policy had a significant negative effect on the global economy as it damaged global supply chains and contributed to rising inflation across the world. Nevertheless, by the end of the year 2022, China announced a series of measures rolling back some of its most draconian anti-COVID-19 restrictions, including limiting harsh lockdowns.
Third, in an effort to fight inflation, the Federal Reserve increased interest rates during seven consecutive meetings this year between March and December, bringing its benchmark rate from 0.25% to 4.5%, the most rapid tightening campaign executed by the central bank since the 1980s. Chair Jerome Powell constantly highlighted the importance of the Fed’s interest hike to temper demand and fight inflation. Nevertheless, in its final meeting of the year, the FOMC expected fewer steep hikes in the year ahead, although that is subject to change depending on economic conditions.
On another note, looking at the local economy, Lebanese hardship continued in 2022, as no agreement was reached with the IMF. In fact, Lebanon is still in the midst of a humanitarian, economic and political crisis with more than 50% of its population living below the poverty line and increasing unemployment rate from 11.4% in 2018-19 to 29.6% in 2022. Moreover, since the departure of Michel Aoun from the presidential palace on October 31, 2022, Lebanon has been facing a presidential vacuum with no solution in sight. In fact, political divisions have prevented the creation of a new cabinet, thus ruling out any agreement on a consensual presidential candidate. Consequently, the country entered the New Year 2023 without a president, while prime minister-designate Najib Mikati acts as the head of a caretaker government.
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Overview of Global and Lebanese Bond Market in 2022