Lebanon’s private sector economy persisted in contractionary territory in March 2024 with a marginal uptick from February’s 49.1 to 49.4 in March (the same as of January 2024) indicating a deterioration in the situation of the Lebanese private sector economy but at a slower pace than February. Several factors contributed to the hurdles faced by Lebanese businesses. The war in Gaza and the security issues in Lebanon along with the weak client purchasing power due to the political and economic challenges, all led to a weak demand and therefore a fall in sales and new orders.
The fall in sales and new orders in turn led to lower staffing in March for the second month in a row. Despite the decline of staffing capacity, backlogs of work also decreased due to a reduction in workloads which helped firms clear pending orders.
New exports orders also experienced a decline in the volume of demands by non-domestic customers mainly due to the war in Gaza and consequently the disruption of shipping in the Red Sea. Moreover, suppliers’ delivery times prolonged and this was attributed mainly to the strike actions at ports which led to delays in the reception of imported goods. In addition, the security issues in the Red Sea increased shipping and insurance costs and this increase was handled to the customers through increasing finished goods prices.
Politically, a group of international ambassadors known as “The Group of Five” (including the US, France, Saudi Arabia, Egypt, and Qatar) are still working on breaking the impasse of the presidential deadlock. The Group of Five remains committed to facilitate the election of a new president and then the formation of a new government aiming to restructure Lebanon and initiate the urgent promised economic reforms. Therefore, the Group of Five is supporting Lebanon in achieving political stability.
The latest statistics on activity at the Port of Beirut showed that container activity rose 15.74% by December 2023. Total container activity including transshipment (TEU+TS) increased by a yearly 15.74% to stand at 827,689 twenty-foot equivalent unit (TEU) for the month of December 2023, with transshipment activity (TS) adding 89.61% YOY to 277,476 TEU, while container activity (TEU) dropped by 1.96% on a yearly basis to 550,212 TEU by December 2023.
On a monthly basis, total container activity increased by 15.80% to stand at 70,353 twenty-foot equivalent units (TEU). In more details, container activity (TEU) added 14.40% for the month of December 2023 compared to same month last year to reach 47,966 TEU while transshipment activity (TS) grew by 61.91% to 22,387 TEU for the month of December 2023, compared to 13,827 TEU in December 2022.
In more details, the transshipment volume of CMA CGM, one of the two major shipping lines operating at the Port of Beirut, increased annually by 72.46% to stand at 177,708 TEU by December 2023. Similarly, transshipment volume of MSC, the other major line, added 131.77% YOY to 51,647 TEU by the same month. Furthermore, the local volume of CMA CGM dropped by 6.58% to reach 174,380 TEU, and local volume of MSC fell by 11.18% to stand at 110,127 TEU by the month of December 2023.
On the economic front, Lebanon’s sustained high inflation rate hits a yearly 123.21% by February 2024. The disruptions in the Red Sea have led to supply chain challenges, resulting in elevated inflationary pressures. As a result, the escalated costs associated with shipping, insurance, and raw materials could compel firms to adjust their pricing strategies upwards at an accelerated pace. Unfortunately for Lebanon, the country is already struggling with persistent high inflation since late 2019, thus it would encounter heightened difficulties in preserving price stability amid prolonged economic and political uncertainty.
It is to be noted that in World Bank’s “Food Security Update” report dated March 12, 2024, it admits Lebanon’s inclusion in a memorandum of cooperation signed with Iraq to enhance agricultural trade and economic activities. This agreement aims to improve cooperation on animal and plant health, bolster land transport routes connecting Lebanon to Gulf countries and Iran through Syria and Iraq, and enhance agricultural productivity.
The report also revealed that Lebanon ranks 2nd in nominal food inflation year-over-year % with 181% behind Argentina that came 1st.
According to the balance sheet of Banque du Liban (BDL), the central bank’s total assets fell by 7.74% compared to last year, to reach $93.43B by mid-March 2024, amid adopting the 89,500 LBP/USD official rate by BDL since February 1st 2024. The fall was mainly due to the 98.95% year-on-year (YOY) drop in other assets, which reached $103.73M by end of mid-March 2024 compared to $9,909M by March 15, 2023. Interesting to mention that based on Central Council decision number 23/36/45 dated 20/12/2023, all previous Central Council decisions related to Seigniorage were suspended and all deferred interest costs emanating from open-market operations were presented under a new line item. As a result, all deferred interest costs included in Other Assets and Assets from Exchange Operations amounting to LBP 118.97 Trillion as of 31/12/2023 were transferred to “Deferred Open-Market Operations”.
Furthermore, the gold account, representing 21.44% of BDL’s total assets, increased by 13.95% yearly to reach $20.03B by mid-March 2024. Additionally, BDL’s foreign assets, consisting of 15.89% of total assets, rose by 2.55% YOY and stood at $14.84B by mid-March 2024, thus increasing by $59.74M in the first two weeks of March 2024. Additionally, BDL holds in its foreign assets $5B in Lebanese Eurobonds.
On the liabilities front, financial sector deposits, representing 93.17% of BDL’s total liabilities, decreased by 3% and reached $87.05B by mid-March 2024 compared to last year, of which more than 90% are denominated in dollars. Lastly, currency in Circulation outside of BDL, consisting of 0.7% of BDL’s total liabilities, plunged by 85.79% annually to reach $651M by mid-March 2024 amid adopting the 89,500 LBP/USD official rate by BDL.
On a different note, the total number of cleared checks in the Lebanese financial system increased from 93,120 checks by February 2023 to 475,868 checks by February 2024. Moreover, the cumulative value of cleared checks in local currency increased remarkably from LBP 9,240B by February 2023 to LBP 77,798B by February 2024. This upsurge is driven by a significant increase in value of Lebanese checks which reflects a larger percentage of discounting Lebanese checks in the market. Similarly, the cumulative value of cleared checks in foreign currency rose from $1,071M by February 2023 to $3,730M by February 2024.
Moreover, the volumes of cleared checks in Lebanese Pounds and foreign currencies witnessed significant yearly rises of 469.4% and 268.42% respectively to settle at 376,217 and 99,651 checks, by February 2024. Accordingly, the dollarization rate of checks in terms of volume fell from 29.05% in February 2023 to 20.94% in February 2024.
Notably, the number of returned checks rose substantially by 428% YOY to stand at 3,607 checks. Moreover, the value of returned checks in foreign currency increased by 857% by February 2024 to reach $201M; additionally, the value of returned checks in local currency increased by 415.31% YOY to reach LBP 1,010B in February 2024.
Banque du Liban (BDL) recently issued Circular 165, which permits depositors to make payments by check starting June 1st, 2023, as long as their accounts are in either fresh US dollars or Lebanese lira. To support this initiative, BDL has introduced a new clearing system, distinct from the one dedicated to pre-crisis deposits. This circular serves a dual purpose: it encourages customers to open new accounts in both Lebanese pounds and US dollars, while also aiming to decrease the country’s dependence on cash and stimulate economic recovery. As such, in February 2024, the cumulative number of checks issued from fresh accounts reached 2,627, of which 1,847 checks are in USD currency amounting $19.41M and 780 checks are in LBP currency amounting LBP 1,311B.
On a monthly basis, a total number of 1,382 fresh checks were issued in February 2024, surpassing the previous month’s figure of 1,245; notably the total number of fresh checks in 2024 exceeds the cumulative number of fresh checks issued from July till December 2023, which stood at 2,395. As such, there is a growing demand for fresh checks among businesses.
Meanwhile, Lebanese cars market has improved by 37.09% YOY by February 2024 according to the data revealed by “Rasamny Younis Motor Co sal”.
On a monthly basis, 316 cars were sold in the month of February 2024. The distribution of cars was as follows: Korean cars took the highest share of 37.03%, Japanese cars accounted for 32.28%, and European Cars grasped 18.99% of the total.
Despite a tentative rebound in Lebanon’s car sector, sales of passenger vehicles are significantly lower than both 2019 and 2020 levels when cars were still being purchased through checks at the beginning of the crisis. Currently, the demand for new vehicles is restricted by inadequate financing options, exacerbated by the depreciating exchange rates of the Lebanese currency.
According to the data from the Orders of Engineers in Beirut and Tripoli, the total construction permits witnessed a year-on-year (YOY) significant decrease of 22.23% to reach 1,588 permits by February 2024 due to several reasons such as public institution’s strike, decrease in the purchasing power of most of Lebanese population in addition to the ongoing security concerns in the southern border and the war in Gaza. However, the Construction Area Authorized by Permits (CAP) increased by 20.36% to record 975,212 square meters (sqm). This could be explained by the increased tendency for group projects rather than individual ones.
Moreover, construction activity witnessed a significant reduction regionally compared to last year. Across the governorates, Mount Lebanon grasped 33.5% of total permits, and accounted for 532 permits in February 2024 compared to 852 in February 2023. Regarding South governorate, it came second and represented 28.4% of total permits; its respective number of permits recorded 451 permits compared to 562 in February 2023. In Nabatieh, 243 permits were registered in February 2024 and representing 15.3% of total permits compared to February 2023 of 353 permits. Furthermore, Bekaa governorate followed with 226 permits and representing 14.23% of total permits in February 2024 compared to February 2023 of 180 permits. Beirut governorate’s share of permits was 5.04% with 80 permits only.
In summary, the Lebanese private sector showed signs of slower deterioration in the March 2024 as economic challenges persist and constraints weigh on the activity of the private sector. This confirms that the economy can’t reach a PMI of 50 or higher unless political stability is maintained and economic reforms are sustained. Otherwise, it will stay in a state of ‘stable under-performance’, but could also slip to severe instability if a war with Israel is ignited in the South and beyond.