Lebanon’s private sector declined at a softer pace in November 2024. The Purchasing Managers’ Index (PMI) rose to 48.1, recovering from October’s 44-month low of 45. However, the index remains below the 50 mark, signaling contraction and indicating ongoing challenges in the private sector. The amelioration of domestic demand to meet internal refugees’ needs highlights a temporary boost in economic activity. This surge shows how efforts to address humanitarian needs have boosted parts of the economy. The Central Bank’s injection of USD liquidity has had a stabilizing effect, enhancing financial conditions and business confidence. Exports and future output also showed signs of improvement. Data was collected from 12 to 25 November 2024, prior to the ceasefire between Lebanon and Israel but after progress was confirmed. Private sector performance was severely affected during this period by the Israeli attacks on Lebanon, impacting all sectors, but the prospect of a ceasefire injected cautious optimism.
That said, as per 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 15.68% in October 2024, from 32.92% in September 2024, recording its lowest level since February 2020. On a monthly basis, the Consumer Price Index (CPI) rose by 2.02% in October 2024. The drop in annual inflation is partly due to increased dollarization in the economy and the stabilization of the exchange rate at around 89,500 LBP per USD. However, ongoing political and military tensions in the Middle East and disruptions in Red Sea shipping could raise inflation by increasing shipping costs. In details, it is worthwhile to note that Food and Non-Alcoholic Beverages (20% of CPI) Prices rose by 22.77% year-on-year (YoY), Housing Water, Electricity, Gas, and Other Fuels (28.4% of CPI) saw a 16.86% annual increase, and Education (6.6% of CPI) rose by 0.93% yearly after a sharp increase of around 587% in previous months.
According to the General Directorate of Land Registry and Cadastre (LRC), the cumulative number of real estate (RE) transactions reached 26,430, valued at $2,653M by September 2024. This valuation is 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 2,447 in September 2024, compared to 4,290 transactions in August 2024 and 4,409 transactions in October 2023. The value of real estate transactions in September 2024 reached $187.04M.
The Ministry of Tourism’s data indicated that the number of incoming visitors witnessed an annual drop of 24.03% reaching 933,976 by August 2024, as the security situation in Lebanon discouraged people from visiting Lebanon during this period. In more details, the number of European tourists dropped by 25.13% YoY to 384,491 by August 2024. Furthermore, the number of tourists from the Arab countries declined by 25.14% YoY to reach 227,524. Lastly, tourists from the American continent fell by 26.03% YoY to reach 192,950 visitors by August 2024.
Furthermore, the number of airport passengers dropped by 62.6% to 193,292 in October 2024 compared to the previous month. This marks the 10th straight month of decline due to the escalating Israeli-Hezbollah conflict in Lebanon. Since the start of the year until October 2024, the number of airport passengers fell by 19.16% to 5,091,058 passengers compared to the same period last year. Countries worldwide urged their citizens to leave Lebanon immediately, while all airlines cancelled their flights to Lebanon due to safety concerns except for Middle East Airlines. This situation led to rising ticket prices, and difficulty securing seats for departures. Additionally, concerns about potential Israeli strikes on Beirut’s airport have further exacerbated the situation especially that few strikes were very close to the airport.
Moreover, total cumulative container activity dropped by 7.46% annually to 575,424 TEU by September 2024. Transshipment activity, which involves cargo transferred from one ship to another at an intermediate port, decreased by 27% to 159,628 TEU during the same period due to higher insurance and shipping premiums and safety concerns, leading to the redirection of some cargo to other ports. Meanwhile, container activity, referring to cargo loaded onto or unloaded from ships at the port, saw a slight increase of 3.14% to 415,796 TEU, indicating that the sum of local demand and supply for goods remains relatively stable.
As per market sources, Lebanese car market expanded by 84.09% YoY by October 2024 to 7,163 cars. On a monthly basis, 477 cars were sold in October 2024 in which Japanese cars grasped the lion’s share with a stake of 33%, followed by European cars (25%) and Chinese cars (23%). 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 few years.
The Association of Lebanese Banks (ABL) reported that the total number of cleared checks in the Lebanese financial system decreased remarkably from 384,251 checks by October 2023 to 163,970 checks by October 2024. However, the cumulative value of cleared checks in local currency increased from LBP 54,497B by October 2023 to LBP 68,524B by October 2024. This upsurge in value of Lebanese checks given that the number of Lebanese checks issued decreased reflects a larger percentage of discounting Lebanese checks in the market. However, the cumulative value of cleared checks in foreign currency dropped from $ 3,003M by October 2023 to $1,125M by October 2024. In addition, 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 October 2024, the cumulative number of checks issued from fresh accounts reached 25,117, of which 17,425 checks are in USD currency amounting $230.05M and 7,692 checks are in LBP currency amounting LBP 14,113B. On a monthly basis, the number of cleared checks in October 2024 was the highest since the introduction of the new clearing system and reached 3,644 checks.
According to Lebanon’s consolidated commercial banks’ balance sheet, total assets declined annually by 8.06% to stand at $104.56B by August 2024, amid BDL’s adoption of a new exchange rate of LBP 89,500 per USD effective 31/01/2024. On the assets side, currency and deposits with Central Bank represented a high figure of 78.14% of total assets; they dropped annually by 3.42% to settle at $81.71B in August 2024. Deposits with the central bank represented 99.9% of total reserves, and decreased by 2.7% YOY, to reach $81.62B in August 2024. Furthermore, vault cash in Lebanese pound declined by 88.06% on a yearly basis to stand at $85.13M by the same period. On the liabilities side, resident customers’ deposits were the main account, representing 65.46% of total liabilities; they dropped by 6.46% since August 2023 to reach $68.45B by the month of August 2024. In more details, deposits in foreign currencies (being 99.1% of resident customers’ deposits) declined by 3.32% YOY to reach $67.83B by August 2024, additionally deposits in LBP (0.9% of resident customers’ deposits) fell by 79.55% YOY to stand at $616.25M by August 2024 especially after applying the new official exchange rate of 89,500. As for non-resident customers’ deposits, grasping 20.23% of total liabilities, they recorded a drop of 0.91% and stood at $21.16B in August 2024. In details, the deposits in LBP fell by 83.64% to reach $ 31.43M and deposits in foreign currencies declined by 0.16% to reach $21.13B over the same period. In addition, non-resident financial sector liabilities held 2.52% of total liabilities and decreased by 15.19% YOY to reach $2.64B in August 2024.
According to BDL’s latest monetary report, the Balance of Payments (BoP) recorded a surplus of $5,106.8M by August 2024, far higher than the surplus over the same period last year of $1,071.1M. Net Foreign Assets (NFAs) of BDL rose by $ 5,325.6M while the NFAs of commercial banks decreased by $218.9M by August 2024. In the month of August 2024, the NFA of BDL increased by $1,216.7M and the NFA of commercial banks rose by $54.4M, generating a surplus of $1,271.1M. The significant increase in the change of BDL NFA is mainly explained by the increase in the value of the Monetary Gold.
On a different note, the World Bank (WB) published on November 14, 2024, “The Lebanon Interim Damage and Loss Assessment” (DaLA). The cost of physical damages and economic losses due to the conflict in Lebanon is estimated at $8.5 billion. In details, the damages to physical structures or assets amount to $3.4 billion; and that of economic or income losses to $5.1 billion over a year from the cut-off dates (mainly October, 2024). In terms of sectors, “Housing has been the hardest hit sector, with almost 100,000 housing units partially or fully damaged, amounting to $3.2 billion in damages and losses. Disruptions to commerce are amounting to close to $1.9 billion, driven in part by the displacement of employees and business owners. The destruction of crops, livestock and the displacement of farmers has driven agricultural losses and damages of about $1.3 billion”. As to macroeconomic performance, the report claims that the conflict is estimated to have cut Lebanon’s real GDP growth by at least 6.6 percent in 2024. That is real GDP is projected to contract by at least 5.7 percent in 2024, compared to a counterfactual scenario without conflict in which real GDP growth would have been 0.9 percent. This compounds five years of sustained sharp economic contraction that has exceeded 34% of real GDP. The report also looks at the impact of the conflict on the people of Lebanon. There are over “875,000 internally displaced persons in Lebanon, with women, children, the elderly, persons with disabilities, and refugees at highest risk. An estimated 166,000 individuals have lost their jobs, corresponding to a loss of $168 million in earnings”.
WB also published its 2023 Worldwide Governance Indicators (WGI) database, evaluating governance across six critical areas: “Voice and Accountability,” “Political Stability and Absence of Violence,” “Government Effectiveness,” “Regulatory Quality,” “Rule of Law,” and “Control of Corruption.” The assessment assigned countries a governance score ranging from -2.50 (indicating poor governance) to 2.50 (indicating strong governance), and placed them within a percentile rank between 0 (lowest performance) and 100 (highest performance) for each category. Lebanon, despite ranking third regionally in “Voice and Accountability,” recorded a weak performance in this category (score: -0.65; percentile rank: 30.88) and struggled significantly in the remaining dimensions: “Political Stability” (score: -1.52; percentile rank: 9.48), “Government Effectiveness” (score: -1.58; percentile rank: 6.13), “Regulatory Quality” (score: -1.01; percentile rank: 14.62), “Rule of Law” (score: -1.17; percentile rank: 13.21), and lastly “Control of Corruption” (score: -1.23; percentile rank: 10.85). Notably, Lebanon experienced a decline in all governance areas compared to 2022, except for a slight improvement in “Regulatory Quality” (most likely due to new governance at BDL).
In conclusion, the November PMI’s rise from a 44-month low in October to a four-month high in November indicates a short-term improvement in economic activity, despite remaining in the contraction zone. This improvement that occurred despite the intensification of the war during that period highlights the resilience and adaptive capacity of Lebanon’s private sector. The temporary ceasefire is expected to boost Lebanon’s private sector, but its success relies on both sides’ commitment. For PMI to recover further, a permanent end to the conflict is essential, followed by political stability, including electing a new president and a reform-committed government. Additionally, significant investments are crucial for rebuilding the country’s infrastructure, which is currently a major obstacle for private sector reinvestment.
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