Global Arab Network | Looking ahead - GDP growth in Lebanon ranging from near zero to 3%

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Looking ahead - GDP growth in Lebanon ranging from near zero to 3%

Global Arab Network - - Shahid Abbas

Wednesday, 26 October 2011 13:59

http://www.english.globalarabnetwork.com/images/stories/2010/Jan/lebanon_beirut-1.jpg

Global Arab Network - With the solid growth of the past few years being scaled back after an extended period of governmental instability, Lebanon’s economy appears to be cooling. However, to some degree, its short-term prospects depend on how economic and political factors beyond the country’s borders unfold, Global Arab Network reports according to OBG.

There is a broad spread of expectations regarding to what extent Lebanon’s economy will expand this year, with forecasts on GDP growth ranging from near zero to well over 3%. Some analysts have suggested the economy could come close to slipping into recession, though a series of recent reports predict GDP will move in a positive direction, albeit at a far slower rate than the 6% posted in 2010.

In mid-September Standard Chartered Bank revised its estimate for Lebanon’s GDP expansion from 3% to 1.5%. Though the bank said the resolution of the five-month political standoff that delayed the formation of the new cabinet under Prime Minister Najib Mikati meant improved stability, the long-running domestic and regional tensions had helped fuel a general slowdown in economic activity in the first half of the year.

Citigroup was somewhat more hopeful, with the international finance house’s analysts saying in a report issued at the end of August that growth would come in at 2.8% this year, rising to 3.5% in 2012. This is still slightly higher than the IMF’s expectations, which lowered its own forecasts for growth from 6.5% to 2.5% as far back as April.

According to Mazen Soueid, chief economist at BankMed, the cooling of the economic climate has been a slow but steady process, predating regional unrest and the fall of the former government in January, with solutions hard to come by.

“Growth prospects started to deteriorate in September 2010, long before the Arab Spring, but the deterioration accelerated during the regional events early this year and following the collapse of the national unity government,” Soueid told local media in mid-September. “There isn’t much the current government can do to stimulate growth because the 2011 budget can’t be adjusted.”

While the government may not have a lot of room to manoeuvre within the constraints of this year’s budget, the economy minister, Mohammad Safadi, said on September 6 that state spending would rise in 2012, though this increase will entail more debt. “The budget will increase by around 15%. Our deficit will not be more than $3bn at best. So we’ll be borrowing,” he told Reuters. The minister said he was confident the additional outlays would help boost GDP growth to at least 4%.

Inflation projections are also a matter of debate, with Citigroup predicting prices to increase by 3.4% this year, down on the 4% of 2010, while Standard Chartered tipped a much higher rate, forecasting inflation of 6% in 2011. The Standard Chartered line was similar to that taken by Lebanon’s central bank, which also sees inflation running at 6% this year, before easing somewhat in 2012. The year-end inflation rate will be impacted by external factors, such as international oil and food prices, both of which are big-ticket import items for Lebanon.

One major threat to the Lebanese economy is the ongoing situation in Syria, which has the potential to spill across the border. Concerns over the movement of refugees fleeing the violence, a prolonged interruption of trade and even the spread of fighting into Lebanon itself have all found voice in the local and international media.

However, the central bank governor, Riad Salameh, has downplayed concerns over the impact of the Syrian unrest on Lebanon’s economy and the banking sector, pointing to the country’s past ability to ride out regional and international storms.

“Lebanon is immune to what is happening in Syria or worldwide because of the model we have, which is a highly liquid, prudent approach to credit and low leverage,” Salameh told media on September 18.

It remains to be seen what the fallout from the tension in Syria will be in the longer term,though having daily clashes broadcast on television around the world does little for building confidence among foreign tourists planning on visiting the region. This is evident from recent figures released by the Hotel Owners Association, which showed a 38% slump in revenue so far this year, in part due to the closing of the land routes through Syria linking Lebanon to other countries in the region. Arrivals are down by 25% for the first seven months of the yearcompared to the same period in 2010, according to data issued in mid-September.

There are some positive signs, with industrial exports up by 5.9% in the January-July period, generating revenue of $2.42bn, compared to the $1.92bn for the first seven months of 2010, while falling international oil prices should ease Lebanon’s imports bill. However, it will take an extended period of domestic stability, as well as a good measure of recovery abroad, before the country will be able to return to the high levels of economic growth posted over the past few years.

Global Arab Network

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