Wage hike poses key risk to the Lebanese economy

Published December 8th, 2011 - 07:47 GMT
BMI said that populist policies, such as the hike to the minimum wage, which are difficult to reverse, constitute the key risk in the near-term
BMI said that populist policies, such as the hike to the minimum wage, which are difficult to reverse, constitute the key risk in the near-term

Business Monitor International warned the Lebanese government against any populist plans such as raising the minimum wage as this would affect the overall economic growth in the country. It added that populist policies, such as the hike to the minimum wage, which are difficult to reverse, constitute the key risk in the near-term.

It added that the near-term outlook on the prospects for capital spending over the coming years remains pessimistic, but that the outlook over the medium to long term is relatively optimistic in the context of ongoing efforts at addressing the pronounced infrastructure deficits.

BMI projected Lebanon’s real GDP growth at 3.2 percent in 2012, relative to an estimated growth of 1.6 percent in 2011. It said the projected growth rate for next year is below the 8.3 percent average rate of expansion between 2007 and 2010 as well as considerably below potential in light of the country’s underlying infrastructure deficit, as reported by Lebanon This Week, the economic publication of the Byblos Bank Group.

It noted that the low level of growth next year does not represent a worst-case scenario, given Lebanon’s chronic current and fiscal account deficits, as well as regional and global political and economic uncertainties. It said the downside risks to the economy are growing more pronounced due to the ongoing crisis in Syria and political paralysis in Lebanon.

It expected the economy to suffer from uncertainties in the coming quarters as consumption, trade and investment indicators are all showing a marked slowdown. But it noted that the economy was still some ways off from entering a recession despite the crisis in Syria.

In parallel, BMI expected private consumption to remain the core of economic activity next year, and to account for over 80 percent of GDP despite that a general rise in risk aversion may lead to sluggish consumption patterns in the early stages of 2012. It added that growth in new credit is slowing and that the impact on private consumption may depend on the employment situation and the effect of the regional crisis and the global slowdown on the tourism sector. As such, it expected remittance inflows to likely continue providing support for private consumption, and to help contain a more pronounced decline in household spending. Further, BMI indicated that the Lebanese government has a very small margin to implement any type of stimulus program, such as the projected 15 percent increase in current spending in 2012, as the fiscal deficit is likely to exceed 9 percent of GDP along with a debt-to-GDP ratio that is still one of the highest in the world.

In parallel, BMI said that Lebanon’s already precarious net export position deteriorated sharply so far this year, as the jump in global commodity prices pushed the import bill significantly higher.


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