One frightful forecast for Lebanon's economy, according to January data
Lebanon’s construction, retail and services sectors contracted the most in January, the seventh consecutive month of decline in business activity, a survey showed Wednesday.
The seasonally adjusted BLOM Lebanon Purchasing Manager Index compiled by data firm Markit dropped to 44.7 – the lowest level since the index was launched in May 2013 – compared to 49 in December 2013, signaling an increasing economic contraction rate.
Readings above 50.0 signal growth and an improvement in business conditions on the previous month, while readings below 50.0 signal contraction.
The survey data is compiled from around 400 private sector companies that represent the structure of the Lebanese economy based on the contribution of each of the manufacturing, services, construction and retail sectors to GDP.
January data signaled a strong fall in the output and new orders indexes, which dropped respectively to 40.2 and 39.9 compared to 49.4 and 47.4 in December 2013, the most pronounced monthly decline since August. The survey said respondents attributed the decline mainly to increasing concerns over political and security instability.
In January two suicide bombings rocked the southern suburbs of Beirut and a third hit Hermel, northeast of the capital, both strongholds of Hezbollah, whose members are fighting in Syria alongside the regime’s forces. Al Qaeda-affiliated groups operating in Syria and Lebanon claimed responsibility for the attacks, saying they came in retaliation against Hezbollah’s involvement in the Syrian war.
The spillover of the Syrian war into Lebanon has dealt a strong blow to the tourism and real estate sectors, both dependent on wealthy Gulf tourists and investors who have been avoiding Beirut since 2012.
“The political and security environment continues to weigh down on business conditions in Lebanon. The two recent bombings perpetuated within a three-week time frame pulled down the PMI to its lowest level in nine months of data collection,” said Marwan Mikhael, head of Research at Blominvest bank.
The PMI composite index is calculated as a weighted average of five sub-components, including new orders (30 percent), output (25 percent), employment (20 percent), suppliers’ delivery times (15 percent) and stocks of purchases (10 percent).
“Wholesale, retail, hotels and restaurants, and the construction sectors were obviously the most affected by the unstable security and political situation and appeared to be the ones that tilted the index heavily to the downside. Official data showing declining tourism and construction permits supports the survey results,” Mikhael added.
Instability in the MENA region has also contributed to a fall in new export orders. After remaining static in December, the index of new export orders decreased in January to 48.
However, despite weaker economic output, the employment index increased slightly to 50.4 as 1.9 percent of surveyed private companies said they hired additional employees versus 0.4 percent of firms that dismissed staff.
Prices charged by private sector companies fell in January as a number of firms sought to boost sales through discounting, simultaneously absorbing higher production costs as both purchase prices and staffing costs rose, the survey said.
January’s survey also showed a fall in purchasing activity linked to lower order intake but the index of stocks of purchases rose as buying levels decreased to a lower extent than the drop in production.