Fitch report foresees Lebanon’s Real household spending to expand and both consumer and retail sectors to recover. The household spending has experienced a drawback since 2017, following the longstanding social and economic ties. As such, Lebanon experienced depreciation of the local currency, with a diverging exchange rate in the parallel market resulting in hyperinflation. The shattering situation led to a surge in unemployment as well as an increase in poverty levels. Fitch also views that household spending will return to the growth level in year 2022 for the first time since 2017. Moreover, it is estimated that household spending to contract by 11.5% in year 2021 and further expand at 6.5% per year to reach USD 29.3bn in 2022 compared to USD40.3bn in year 2017. As such, “year 2022 will mark the start of a careful and protracted recovery of Lebanon’s consumer and retail sector” as explained. In details, point of sales (POS) data published by BDL indicates that retail sector has not yet started recovering as number of contracts signed with merchants declined by 7.5% year on year. Furthermore, growth in consumer spending is expected to come in line with the economic growth which is forecasted to rise by 6.2% as a result of the government formation and the inflow of international aid supposedly to take place. As such unemployment rate is expected to start declining in 2022 to average 22%. We add that the restructuring of Beirut port, stabilization in the political situation will aid consumer confidence, boost investment spending as well as the tourism sector. In details, tourists’ arrival is expected to increase by 57.6% in 2022.
It is worth mentioning that Fitch country risk team estimates the Lebanese currency to reach an average of LBP24,000/USD over year 2022 compared to USD11,643/USD in 2021, after losing 60% of its value over the period of Jan-Aug 2021. On a second note, the resulting inflation is expected to average 138.1% in year 2021 up from 84.9% in year 2020. This puts a continuous pressure on purchasing power as well as shortage in goods and supply chain issues.
Importantly, Fitch global foresees that a hike in vaccination rate will experience a notable drop in Covid-19 cases followed by easing restrictions, resulting in a notable recovery in consumer spending followed by a boost in consumer confidence and retail sales. We note that Lebanese population was highly vaccinated yet with only 22.8%, lower than its regional peers. Moreover, Oxford Covid-19 Government Response Tracker adds that despite the significant ease, citizens are still required to take needed precautions. Fitch finally views that inflation will peak in the first half of 2022 then start to ease in the second half of 2022 for economic growth to pick up. Of course, Fitch’s predictions are rather optimistic and they depend on a functioning government with a reform agenda. Hopefully, this will happen in 2022 and help turn things around in the country.
