Lebanon’s private sector recorded its severest deterioration since February 2021, as the Purchasing Managers’ Index (PMI) fell from 47.0 in September 2024 to 45.0 in October 2024. This sharp decline is attributed to the huge escalation of the war between Hezbollah and Israel, resulting in a sharp decline in new orders and new export orders leading to a decline in business activity. New orders decreased at the fastest pace in three – and – a – half years as the escalation of the war forced people to purchase only the basic needs, and as the unemployment rate reached at least 34% in 2024, according to the United Nations Development Program (UNDP). Similarly, new export orders contracted and the contraction was the steepest since May 2020 as the war obliged international clients to purchase from other countries as shipping costs mount. These declines in new orders led to the sharpest decrease in business activity since February 2021. Though expected, it is still devastating that the majority of the surveyed respondents were pessimistic regarding business activity in the upcoming 12 months.
That said, the activity at Rafic Hariri International Airport has decreased in September 2024 for the 9th consecutive month, as the Israeli-Hezbollah war in Lebanon escalated dramatically. Countries worldwide urged their citizens to leave Lebanon immediately, while most airlines cancelled their flights to Lebanon due to safety concerns. This situation led to rising ticket prices, and fears of difficulty securing seats. Additionally, concerns about potential Israeli strikes on Beirut’s airport have further exacerbated the situation, contributing to a sharp decline in tourist arrivals. As such, the cumulative count of passengers at Rafic Hariri International airport in 2024 dropped by 15.28% annually, reaching 4,897,766 passengers by September 2024. The breakdown of the airport’s statistics revealed that total arrivals declined by 15.45% year-on-year (YOY) to stand at 2,414,291 passengers by September 2024. Likewise, number of departing passengers decreased by 14.95% on yearly basis to reach 2,479,140 passengers. Moreover, transit passengers dropped from 10,582 passengers by September 2023 to 4,335 passengers by September 2024. Similarly, the monthly statistics showed a decline of 27.03% of Airport Passengers from August to September 2024. In more details, arrivals dropped by 14.69% to record 210,147 passengers, departures fell by 34.37% to stand at 274,618 passengers, in contrast to an increase in transit by 64.83% to 567 passengers by September 2024.
Additionally, total container activity including transshipment (TEU+TS) dropped by 8.07% annually by August 2024 recording 513,866 twenty-foot equivalent unit (TEU), amid the escalation of the Israeli-Hezbollah war in Lebanon. Transshipment activity (TS) lessened 27.72% YOY to 146,479 TEU, while container activity (TEU) rose by 2.01% to 367,387 TEU by August 2024. On a monthly basis, total container activity decreased by 22.22% to stand at 69,609 twenty-foot equivalent units (TEU). In more details, container activity (TEU) increased by 2.03% for the month of August 2024 compared to same month last year to reach 51,926 TEU while transshipment activity (TS) dropped by 54.19% for the month of August 2024, compared to 38,598 TEU in August 2023.
In addition, according to the Central Administration of Statistics (CAS), the Consumer Price Index (CPI), representing the evolution of goods and services’ prices consumed by households, revealed that Lebanon’s annual inflation rate fell to 32.92% in September 2024, from 35% in August 2024, recording its lowest level since March 2020. The decrease resulted from the increase of dollarization rates by businesses and to the stability of the exchange rate especially since August 2023. Meanwhile, the continued escalating political and military tensions in the Middle East and its effect on Red Sea sea-shipping traffic threatens to disrupt supply chains, which will increase shipping costs, and consequently lead to an increase in inflation. In addition, the escalation of the war between Lebanon and Israel threatens to disrupt food and other basic needs imports, thus resulting in an increase in its prices. In details, it is worthwhile to note that Education (6.6% of CPI) increased by 587.24% YOY due to the dollarization of education fees and miscellaneous goods & services (4.1% of CPI) rose by 41.66% YOY during the same period. Moreover, and after the escalation of the war, nearly 1.2 million people were forced to leave their houses and move towards less dangerous places, which led to increase in “New Rent” by 36.9% YOY as demand of apartments exceeded the supply.
According to the balance sheet of Banque du Liban (BDL), the central bank’s total assets declined by 10.6% annually, to reach $94.3B by the first half of October 2024, amid adopting the 89,500 LBP/USD official rate by BDL since February 1st 2024. The fall was mainly due to the 96.7% year-on-year (YOY) drop in other assets, which reached $235M by the first half of October 2024. Furthermore, the gold account, representing 26% of BDL’s total assets, increased by 40.8% yearly to reach $24.5B by the first half of October 2024. Moreover, BDL’s foreign assets, consisting of 16.44% of total assets, rose by 10.8% YOY and stood at $15.5B by the first half of October 2024. Additionally, BDL holds in its foreign assets $5B in Lebanese Eurobonds. A key highlight is that foreign assets decreased by $343.65M in the first two weeks of October 2024 primarily due to the 3-months lump-sum payments for depositors who qualify for circulars 158 and 166 as BDL paid 5/6 of these payments. Note also that BDL amended circulars 166 to broaden the range of beneficiaries. The new amendment to circular 166 allows all depositors who converted their deposits from Lebanese Pounds to foreign currencies after October 30, 2019, to benefit from the circular’s provisions, regardless of the amount. On the liabilities front, financial sector deposits, representing 91.57% of BDL’s total liabilities, decreased by 2.83% and reached $86.4B by the first half of October 2024 compared to last year, of which more than 90% are denominated in dollars. Moreover, public sector deposits, representing 6.3% of BDL’s total liabilities, dropped by 43.6% yearly and reached $5.9B by the first half of October 2024. Lastly, currency in circulation outside of BDL, consisting of 0.6% of BDL’s total liabilities, plunged by 85.7% annually to reach $581.5M by the first half of October 2024 amid adopting the 89,500 LBP/USD official rate by BDL.
According to the data published by the Association of Lebanese Banks’ (ABL), the total number of cleared checks in the Lebanese financial system decreased remarkably from 353,183 checks by September 2023 to 151,419 checks by September 2024. However, the cumulative value of cleared checks in local currency increased from LBP 45,699B by September 2023 to LBP 61,976B by September 2024. This upsurge in value of Lebanese checks reflects a larger percentage of discounting Lebanese checks in the market. However, the cumulative value of cleared checks in foreign currency dropped from $ 2,848 M by September 2023 to $ 1,078M by September 2024. Moreover, the volumes of cleared checks in Lebanese Pounds and foreign currencies witnessed substantial yearly drop of 49.07% and 83.62% respectively to settle at 137,933 and 13,486 checks, by September 2024. Accordingly, the dollarization rate of checks in terms of volume fell from 23.31% in September 2023 to 8.91% in September 2024. Notably, the number of returned checks dropped substantially by 71.33% YOY to stand at 836 checks in September 2024. On a monthly basis, a total number of 3,476 fresh checks were issued in September 2024.
Furthermore, according to market sources, Lebanese car market expanded 71.83% YOY by September 2024 to 6,686 cars. On a monthly basis, 927 cars were sold in September 2024 in which Japanese cars grasped the lion’s share with a stake of 37%, followed by European grasping 25% of the total and Chinese cars 18%. Lebanon’s car sector has undergone some fluctuations in the last 4 years, and sales of passenger vehicles were significantly lower than 2019 levels when cars were still being purchased through checks. Currently, the demand for new vehicles is restricted by the absence of financing options, exacerbated by the lower purchasing power of the people, though it has been improving in the past two years.
In addition, according to the data from the Orders of Engineers in Beirut and Tripoli, the total construction permits witnessed a year-on-year (YOY) decrease of 3.89% to reach 6,792 permits by August 2024 due to several reasons such as 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 24.94% to record 3,585,729 square meters (sqm). This could be explained by the increased tendency for group projects rather than individual projects. Moreover, construction activity witnessed some fluctuation compared to last year. Some governorates witnessed an increase such as Beirut, North Lebanon, and Bekaa while other governorates’ activity decreased like Mount Lebanon, South Lebanon, and Nabatieh. Across the governorates, Mount Lebanon grasped 36.94% of total permits, and accounted for 2,509 permits in August 2024 compared to 2,577 in August 2023. Regarding South governorate, it came second and represented 25.27% of total permits; its number of permits recorded 1,716 permits compared to 2,029 in August 2023. In Nabatieh, 1,087 permits were registered in August 2024, representing 16% of total permits, compared to 1,483 permits in the previous year. Furthermore, Bekaa governorate followed with 930 permits and representing 13.69% of total permits in August 2024, compared to 611 permits in August 2023. Beirut governorate’s share of permits was 4.55% with 309 permits only compared to 199 permits in August 2023.
Additionally, according to the data from the General Directorate of Land Registry and Cadastre (LRC), the cumulative number of Real estate (RE) transactions reached 23,983, valued at $2,466M by August 2024, calculated at the new official rate of USD/LBP 89,500, effective from February 1st, 2024. On a monthly basis, the number of RE transactions stood at 4,290 in August 2024, compared to 3,303 transactions in July 2024 and 871 transactions in June 2023. In details, the Keserwan region holds the biggest share of real estate transactions at 1,066, or 24.85% of total RE transactions (4,290), followed by the North region (21.17% of total RE transactions), Zahle (17.25%) and South (15.71%). Moreover, the value of real estate transaction reached $338.81M in August 2024 out of which Beirut grasped the lion’s share of the total value, equivalent of 34.72% and worth $117.6M, while the Keserwan followed, constituting 30.87% of the total and worth $104.6M.
On a different note, the Institute of International Finance (IIF) published on October 11th, 2024, a report titled, War in the Middle East: At an Inflection Point, that analyzed the economic implications of the Israel-Lebanon war on the MENA region and the global economy. Focusing on Lebanon, the report emphasized that the war will severely impact Lebanon’s already drained economy, placing it at a new severe inflection point. And to evaluate the war’s impact, it developed two alternative scenarios for the economy. First scenario, the baseline scenario, it postulates a significant Israeli ground invasion and assumes that the conflict lasts through mid-2025, as a result of which “the Lebanese economy will contract by about 10% in 2025. Such a drop in real GDP is explained by an expected acute fall in private consumption, as more than 12% of the population (including Syrian refuges) has left the country, as well as by a substantial decline in exports of goods and services”. Second scenario, the pessimistic scenario, it assumes that fighting in Lebanon would continue for most of 2025. This would result in significantly larger losses of life, internal displacement, emigration, and infrastructure destruction than in our baseline scenario. We estimate that under this scenario growth could contract by as at least 15% in 2025”.
Moreover, Lebanon was listed on the Paris-based Forced Action Task Force (FATF) grey list on October 25th, 2024 for not implementing the required actions to combat money laundering and terrorist financing as per MENA FATF’s assessment last year. However, as per Elisa de Anda Madrazo of Mexico who currently holds the organization’s rotating Presidency, “Of course, we recognize the extremely grave situation that Lebanon is currently facing and Lebanon’s being put in the grey list should not impede relief efforts and we are working to ensure that channels of humanitarian aid remain open”. Therefore, the promised $1 billion in aid that were decided in the Paris meeting last week, out of which $200 million will be given to the Lebanese army, should not be affected. Moreover, Madrazo stated that “there was a degree of flexibility granted to Lebanon as it relates to the deadlines set in the action plan”; despite that, Lebanese officials were not able to implement the required actions. Listing Lebanon on the grey list will lower attractiveness of foreign direct investments which became more urgent and are required as soon as the cease fire decision is implemented. Without these investments, the villages that were destroyed cannot be rebuilt. Also, other consequences are an increased cost for Lebanese companies in doing business with foreign counter parties due to increased due diligence and payment delays affecting trade and supply chain which will affect the economic situation in Lebanon.
In conclusion, the October 2024 Purchasing Managers’ Index (PMI) reflects a faster deterioration in the Lebanese Economy compared to September 2024 as the PMI decreased from 47.0 to 45.0 in October. However, the pace of deterioration was largely anticipated as the war with Israel escalated since the end of September and affected almost 25% of the Lebanese territory where living became impossible. Unfortunately, the private sector companies are pessimistic regarding the future outlook as the majority of them expect activity levels to shrink in the upcoming 12 months. Also, in case the war ends soon, the country needs huge investments to rebuild the damaged and destroyed infrastructure that does not currently exist. Therefore, at the least, Lebanese authorities have to start implementing the actions required by FATF and execute the necessary reforms soon in order to facilitate foreign investments and financial flows as soon as the war ends to help rebuild the destroyed infrastructure and start the economy recovery process.
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