Lebanon: Starting 2015 with a Shy Progress

Despite talks between the different political parties, Lebanon continued to witness a protracted political impasse with a presidential vacuum for almost a year, a 5-month period lacking legislative sessions, and failure of successive governments to approve even one budget for the past 10 years.

 

Lebanon: Starting 2015 with a Shy Progress 
Lebanon: Starting 2015 with a Shy Progress 

Yet, the security situation remains stable, in spite of rising regional squabbles. This has led to a modest improvement in some sectors of the economy.

Hence, the International Monetary Fund (IMF) expected economic growth rate to increase from 2% in 2014 to 2.50% in 2015. However, the BLOM Purchasing Managers’ Index remained below the 50 mark, at an average of 49.0 points in the first quarter (Q1) of 2015, compared to a higher average of 49.2 points in the last quarter (Q4) of 2014.

Lebanon went through a deflation in Q1 as consumer prices declined by 3.38% y-o-y, after Brent crude oil price reached a 5Y minimum end of January.  The average Consumer Price Index stood at 97.55 points, mainly due to the 11.46% and 17.52% declines in its 2 major sub-indices “water, electricity, gas & other fuels” and “transportation”, respectively.

As for the once-thriving sector in Lebanon, real estate witnessed an 18.23% drop in to 12,948 transactions in Q1, reflecting widespread pessimism over activity amid uncertain political environment. However, foreigners showed more confidence in Lebanon, where their share of total transactions increased from 1.48% to 2.37%, in 2015. 

Similarly, construction was worse off, with the number of permits declining 26.78% y-o-y to 1,966 by February. An overall economic slowdown has stimulated developers to shy away from retail and commercial projects to residential projects. Demand for apartments has shifted to small- and medium-size outside the capital. Demand for luxury apartments in Beirut has almost come to a halt, as Arab investors have been hesitant to buy properties in Lebanon.

However, tourism, one of the main drivers of the Lebanese economy, saw a yearly improvement of 23.12% in Q1 2015 to 282,256 tourists. The stable security environment along with the good outcome of the winter sports season and lower ticket fares lured many tourists to visit Lebanon. For instance, Middle East Airlines reduced its fuel surcharge on tickets by 50% to reflect the recent drop in oil prices. Moreover, several Arab airlines increased the number of flights to Lebanon in response to the surge in passenger demand. Consequently, hotel occupancy improved, with the average rate adding 14 percentage points to 53% by March. Average room rate and average room yield gained 8% and 46.5% to $172 and $92, respectively.

Lebanon recorded a deficit of $432.8M on its balance of payments in the first 2 months of 2015, compared to a surplus of $162.4M during the same period in 2014. However, trade deficit narrowed 30.03% y-o-y to $2.17B, by February 2015. Imports displayed a 26.18% decline to $2.66B, while exports dropped by 2.09% to $486.38M.

Shifting to the fiscal sector, gross public debt climbed 6.48% y-o-y to reach $69.21B by February 2015. In contrast, fiscal deficit narrowed 27.19% yearly to $3.07B in the 2014, with a primary surplus of $1.31B compared to a primary deficit of $239.68M, during 2013. This progress came as a result of a 15.48% increase in total revenues outpacing the 2.28% uptick in total expenditures. The rise in revenues was driven by a strong recovery in revenues from telecom (40.72%), although a big chunk is a one off transaction, while the main increase in expenditures came as a result of the 10.51% increase in interest payments to $4.19B. Worth mentioning that Public Works and Transportation Minister, Ghazi Zeaiter, announced the launching of an express transport project linking Beirut to Jounieh, after the approval of the Cabinet. The cost of the project of $250M would be funded by the World Bank. On another note, Lebanon sold $2.2B worth of sovereign Eurobonds, enclosing 10Y Eurobonds yielding 6.20%, and 15Y Eurobonds yielding 6.65%.

The monetary front remained sturdy and continued to lift the economy, as BDL’s total assets increased 3.67% q-o-q, to stand at $88.84B by the end of Q1 2015. Likewise, its foreign currency reserves inched up 1.62% during the same period to $38.48B. Total assets of commercial banks posted a 0.49% increase since year start, to $176.66B by February.

The stabilized political and security environment in Q1, led investors to regain their confidence in the Lebanese Bourse. The BLOM Stock Index (BSI) inched up 4.77% since last quarter, to 1,226.04 points end of March, 2015. Trade occurred at a higher average volume of 262,596 shares worth $2.01M, compared to 295,446 shares worth $2M, the previous quarter. Market capitalization widened by $544.22M to $10.32B, following the listing of 3M Bank of Beirut preferred shares class “J” on the BSE in February. Moreover, the CMA will authorize the launching of an electronic market for digital trading. This electronic exchange will be run from the BSE if the government privatizes the bourse. If not, the online bourse will be independent and owned by the private sector.

 

 

 

 

 

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