Lebanese economy still drifting amid political concerns

Uncertainties surrounding the endorsement of a new electoral law have restrained economic demand during the month of April.
  • Last update: 4 May 2017 | 18:57

BEIRUT: Business conditions continued to deteriorate across Lebanon’s private sector economy at the start of the second economic quarter for 2017.

Highlighted in the BLOM Lebanon PMI index was the headline reading of 47.5 for April, below the 50.0 mark that separates growth from contraction. That said, the index increased from March’s four-month low of 46.9 to signal a slight slowdown in the rate of decline, the company said in a statement.

Marwan Mikhael, Head of Research at BLOMINVEST Bank, said: “Uncertainties surrounding the endorsement of a new electoral law have restrained demand during the month of April, especially after missing another critical deadline for the third time since 2013. This was translated into a further, albeit slower, decline in the business conditions of the private sector economy.”

“On the brighter side, the decrease in output in April was the second-slowest seen since the start of 2016,” he added. “For the period to come, the turn of events by mid-May, date of the new electoral law deadline, will shape future political developments and their impact on private sector activity.”

The Purchasing Managers Index (PMI) is a composite index, calculated as a weighted average of five individual sub-components: New Orders (30 percent), Output (25 percent), Employment (20 percent), Suppliers’ Delivery Times (15 percent) and Stocks of Purchases (10 percent). Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show deterioration.

PMI surveys are a standard economic measure used around the world to measurer to study economic performance.

Survey data pointed to a further weakening of demand for Lebanese goods and services, with inflows of new orders falling again in April, albeit more slowly than the month before. The decrease, which included a further reduction in new work from abroad, was reflected in a drop in the amount of outstanding business held at Lebanese companies, the company reported.

The reduction in workloads was translated into a further decrease in the level of output across the private sector economy in April, extending the current sequence of decline to nearly four years. However, the rate at which business activity contracted was the weakest seen since January.

April also saw slower declines in both employment and firms’ purchasing activity. Inventory levels continued to rise despite the drop in quantities of purchases, though the pace of accumulation was at a four-month low.

On the supply side, Lebanese firms faced a slight increase in lead times on purchased items for the second month in a row. They also reported paying more (on average) for items, though the rate of inflation was the lowest recorded since January. This was also the case for overall cost burdens, which showed a rate of increase that was well below March’s 18-month high. Salary pressures meanwhile remained subdued, according to BLOM.

Average prices charged for goods and services decreased for the twenty-fifth month in a row in April. That said, the rate of decline was only modest and the slowest seen for 15 months.

Finally, April’s survey data showed a drop in firms’ confidence towards the year-ahead outlook for business activity. Future expectations were in fact at their lowest since May 2016, having deteriorated in each of the past five months.

The survey, sponsored by BLOM and compiled by Markit, a global research company, has been conducted since May 2013 and provides an early indication of operating conditions in Lebanon.


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