BEIRUT: Lebanon's Purchasing Managers' Index fell to its lowest since October 2016, dropping to 45.4 in July 2018, down from 46 the month prior.
According to Blom Bank's PMI, the real GDP Growth appears to be declining in the third quarter of the year following the disappointing PMI reading in July compared to the previous months, as demand continues to be subdued in Lebanon’s private sector economy.
Given the PMI results for July 2018, analysts at Blom assume that the implied GDP growth in Q3 2018 could be lower than 1 percent.
The slump in the real estate sector also overshadowed the increase in tourist arrivals, with the Ministry of Tourism maintaining that the total number of tourist arrivals to Lebanon increased by an annual 3.26 percent to 853,087 tourists by June 2018.
According to the Ministry of Finance, the fiscal deficit widened from $161.58 million by February 2017 to $865.03 million in by February 2018, highlighting that the fiscal deficit continues to be a major macroeconomic vulnerability.
Blom also found that Lebanon’s primary fiscal balance, which excludes debt service, is in the red with a deficit of $329.56 million in the first two months of 2018 compared to a surplus of $330.91 million during the same period last year. The fiscal deficit widened on account of the increase in the salaries and wages of public sector employees and as a sizeable portion of telecom revenues was not yet transferred to the Ministry.
According to Blom, maintaining the current status-quo will keep pushing Lebanon’s debt to unsustainable levels. The Association of Lebanese Banks, Lebanon’s gross public debt hit $82.5B in May 2018, registered a surge of 7.53% y-o-y according to the Ministry of Finance (MoF). Furthermore, Local Currency Debt which forms 56.75% of Total Debt had decreased by 0.49% year-on-year (y-o-y) to $46.82B. In addition, Foreign Currency Debt which constitutes the remaining 43.25% of Total Debt rose by 20.23% y-o-y reaching $35.68B.
In May 2018, the Ministry of Finance swapped $5.5B worth of Eurobonds with Treasury Bills from Banque du Liban’s portfolio.
Slower activity was also seen in the decline in the value of cleared checks. The value of cleared checks hit $32.84B by June 2018 according to the Association of Lebanese Banks (ABL), down by 2.46% from the same period last year. In addition, the total number of cleared checks shrunk by 2.86% year-on-year (y-o-y) to stand at 5.88M by June 2018.
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