Lebanon's business conditions register softest decline in seven months

Output and new orders fell at a slower pace in January, but purchasing power remained under pressure amid high cost of US dollars

Lebanon's private sector shrunk at a softer pace in January with business conditions hitting a seven-month high due to a slower decline in output and new orders.

The Blom Lebanon PMI, which measures operating conditions in the country's private sector, rose to 47.1 in January, up from 46.7 in December, and its highest mark since last June. However, it remained below the 50.0 mark that separates growth from contraction.

Political and economic uncertainty coupled with the high cost of US dollars weighed on consumer demand and raised operating costs.

“Lebanon started the year on a relatively positive note as the month of January witnessed steady appreciation of the Lebanese currency while the Lebanese government met for the first time in months and discussed the state budget days before the start of negotiations with the International Monetary Fund,” Fadi Osseiran, general manager of BlomInvest Bank, said.

“Overall, the situation signals 'good intentions' on the part of the government coupled, as importantly, with significant improvement in the Lebanese currency due to the intervention of the Central Bank to stabilise it,” he said.

“Amid this environment of 'cautious optimism', we hope to see the start of reform measures that aim at regaining confidence and restoring recovery and that would avoid deepening the crisis in the upcoming period.”

Lebanese officials began much-delayed talks with the IMF on January 24 about support measures to lift the country out of its extreme economic crisis. The country is hoping for a financial rescue package to stimulate an economy that has been in free-fall for more than two years.

Lebanon’s economic depression, orchestrated by the country’s elite, is among the worst economic collapses since the 1850s and is disintegrating key pillars of its post-war economy, the World Bank said last month. The country’s real gross domestic product is estimated to have declined by 10.5 per cent in 2021, on the back of a 21.4 per cent contraction in 2020, the Washington-based lender said in its latest Lebanon Economic Monitor.

Companies' output fell during January owing to the continuing political and economic crises and weak demand, but the rate of contraction in business activity was the weakest since June.

New orders also declined last month, with firms citing a deterioration in purchasing power among domestic clients due to the high cost of the US dollar. Meanwhile, new work from international clients also decreased because of the challenging political and economic climate within Lebanon.

The lack of new work due to shrinking backlogs also impacted payroll numbers, with the latest survey of Lebanese firms showing a marginal drop in employment. In many cases, however, staffing levels were kept unchanged.

Firms' input costs increased, which they largely attributed to a weak domestic currency against the US dollar. Overall, operating expenses have increased in each of the past four months.

Business expectations remained pessimistic in January, according to the latest survey of private sector sentiment.

Uncertainty about the economic and political situation in Lebanon made it difficult for firms to accurately forecast activity over the coming year, although in many cases, the operating environment is still expected to worsen, the report said.