trends indicate lebanon could slip into recession in 2013
Last Updated : GMT 18:08:33
Arab Today, arab today
Arab Today, arab today

Trends indicate Lebanon could slip into recession in 2013

Arab Today, arab today

Arab Today, arab today Trends indicate Lebanon could slip into recession in 2013

Beirut - Arabstoday

As an unfavorable third quarter comes to an end on Sept. 30, economic experts warned of an even worse Lebanese economy for the kickoff of next year, given the economic trends going forward. Despite hopes that the summer season and tourism would provide a boost to businesses, this year marks little to be remembered when it comes to the Lebanese economy. The third quarter was a season of canceled tourism, endless power blackouts, lowered industrial and agricultural exports, an increasing current account deficit, domestic political troubles, slower real estate development, falling retail sales and dropping foreign investment. The sources of problems ranged from the uniquely domestic, such as the fear of Lebanese political problems scaring tourists off, to such global factors as a slowed European economy and the regional knock-on effect of the burgeoning Syrian crisis. As a result, a slowdown was experienced throughout various Lebanese business sectors. Meanwhile, Bahrain, Qatar and the United Arab Emirates all warned their respective citizens not to visit a troubled Lebanon. Later Saudi Arabia also added to the concert of cautionary notes by telling Saudis – usually the largest spenders of the tourist season – also not to come. Collectively, these nations make up 45 percent of tourist season spending. This comes on top of a tourism drop of nearly 24 percent to 1,666,051 visitors in 2011 versus 2,167,989 in 2010 – largely due to concerns about the markedly growing unrest in neighboring Syria and ongoing incidents in Beirut and the northern city of Tripoli. Simon Neaime, head of the American University of Beirut’s economics department, forecast that by year-end the gross domestic product would hit a range between 1 and 1.5 percent. This, he noted, was down from an earlier forecast of 3 percent. Worse still, he told The Daily Star that it is a big possibility for the country to slip into a recession – technically defined as two quarters of zero or negative growth – in 2013 if the Lebanese economy continues on its current path of cautious foreign investment, empty hotels, staggering government debt-to-GDP ratio, low retail and export sales volumes, and downward trending consumer confidence. “The Lebanese consumers are not shopping,” he said, adding that individual spending makes up a large percentage of GDP. “The economy might turn negative next year.” He added that “already we have an alarming situation. 2013 might be a difficult year.” Neaime said the government was effectively at the end of its spending limits because of the high public debt: “The government is in a real squeeze.” He added that various economic problems contribute to “already weak economic fundamentals” – such as the continually high debt-to-GDP ratio. Byblos Bank chief economist Nassib Ghobril told The Daily Star that there was little on the upside in recent economic indicators, also pointing to the collapsed tourist season, record low consumer confidence and the ripple effect of the Syrian crisis. He said this would continue to drag the economy down going into 2013. Ghobril also emphasized that the internal political dynamic of Lebanon was harming the domestic economy to such an extent that nothing short of a positive political shock similar to that generated by the Doha Accord would significantly bolster consumer confidence and, therefore, economic activity. “Consumer confidence is at an all time low ... since the start of the index’s calculation in July 2007, and even lower than in the fourth quarter of 2011 when the index reached its lowest level since its inception.” He said the bank would publish next week the official results of the Byblos Bank/AUB Consumer Confidence Index for the first half of 2012. “I may add that the indicators at hand, including consumer confidence figures, do not even reflect the security deterioration and the related events of August, as these indicators are for June or July at best.” He stopped short of predicting a recession, but noted that the Central Bank’s Coincident indicator, a proxy for economic activity in the country, “shows that the economy has been stagnating in the first half of the year.” Byblos Bank recently reported that tourism spending in this year’s second quarter was down by 20 percent from the first quarter. Figures on tourism spending have not been reported yet for the third quarter. “As long as there is uncertainty in the political situation [both in Lebanon and Syria] the economic outlook going forward is at best foggy.” Ghobril said that at most, GDP for 2012 would come in at no higher than 2 percent and would most likely be lower. At the beginning of the year, the International Monetary Fund had projected the GDP at 3 percent. “Capital inflows are down, investor sentiment is down, and businesses are in a wait-and-see mode,” he said of the macro-economic state of the Lebanese economy, adding that “there has been no announcement of a major FDI (Foreign Direct Investment) project in Lebanon this year.” “The situation in Syria is casting a long shadow over Lebanon,” he said. Ghobril, along with AUB’s Neaime and other banking and independent reports, all pointed to the growing current account deficit, a result of slowed exports and more costly imports. The Economist Intelligence Unit said in its late August country report on Lebanon that because of the country’s dependency on highly priced imports of oil, industrial raw materials and food, the current account deficit will hit 27.2 percent of GDP by the end of 2012. With sales levels dropping throughout the country, the Beirut Trade Association has also warned recently of a potential economic collapse. Head of the association Nicolas Chammas said during a recent meeting of the group that “economic conditions have been deteriorating since the beginning of the year.” Private sector groups blasted last Friday a draft law that increases public sector wages. “The salary scale will have disastrous consequences on the state Treasury, which is already suffering from a gross financial deficit, and on the economy and citizens,” a collective group of private sector economic committees said in a statement last week. The group also warned against the negative economic effects of new private sector taxes to pay for the salary hike, which will cost the government an estimated $1.6 billion annually. Business Monitor International, an international information and consultant group forecast Monday a 1.6 percent GDP in Lebanon for 2012, down from their earlier forecast of 2.8 percent. The change was attributed to the security situation, political paralysis, the Syrian uprising and higher global oil prices. Meanwhile, Pew Research Center reported in its Global Attitudes Project that only 12 percent of Lebanese surveyed said the country had a “good economic” situation. This compares at the high end with 83 percent of Chinese and 73 percent of Germans who expressed confidence in their respective nation’s economies. From: The Daily Star.

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