PMI Highlights – July 2018
The Real GDP Growth appears to be declining in the third quarter of the year following the disappointing PMI reading in July compared to the previous months. The BLOM Lebanon Purchasing Managers’ Index (PMI) dropped to 45.4 in July 2018 down from 46.0 in June 2018. July’s PMI reading is the lowest since October 2016 as demand continues to be subdued in Lebanon’s private sector economy. Given the PMI results for July 2018, we can assume that the implied GDP growth in Q3 2018 could be lower than 1%.
The real estate sector has been particularly sensitive to the morose economic environment. According to the General Directorate of Land Registry and Cadastre (LRC), the number of real estate transactions, decreased by a yearly 18.20% to reach 27,472 transactions in the first half of 2018. The value of total real estate transactions also dropped by an annual 14.01% to stand at $3.87B. Lower appetite for real estate has been more pronounced after the 2018 package of subsidized loans offered by the Central Bank of Lebanon has been used up at the beginning of the year.
The slump in the real estate sector overshadowed the increase in tourist arrivals. According to the Ministry of Tourism, the total number of tourist arrivals to Lebanon increased by an annual 3.26% to 853,087 tourists by June 2018. It is worth mentioning that in the month of June alone, tourists arrival from Arab countries rose by a yearly 24% to 46,971 for the occasion of Eid al Fitr.
The fiscal deficit continues to be a major macroeconomic vulnerability. According to the Ministry of Finance, the fiscal deficit widened from $161.58 million by February 2017 to $865.03 million in by February 2018. Even Lebanon’s primary fiscal balance, which excludes debt service, is in the red with a deficit of $329.56 million in the first two months of 2018 compared to a surplus of $330.91 million during the same period last year. The fiscal deficit widened on account of the increase in the salaries and wages of public sector employees and as a sizeable portion of telecom revenues was not yet transferred to the Ministry.
Maintaining the current status-quo will keep pushing Lebanon’s debt to unsustainable levels. According to the Association of Lebanese Banks, Lebanon’s gross public debt hit $82.5B in May 2018, registering a surge of 7.53% y-o-y according to the Ministry of Finance (MoF). Furthermore, Local Currency Debt which forms 56.75% of Total Debt had decreased by 0.49% year-on-year (y-o-y) to $46.82B. In addition, Foreign Currency Debt which constitutes the remaining 43.25% of Total Debt rose by 20.23% y-o-y reaching $35.68B. In fact, in May 2018, the Ministry of Finance swapped $5.5B worth of Eurobonds with Treasury Bills from Banque du Liban’s portfolio.
Slower activity was also seen in the decline in the value of cleared checks. The value of cleared checks hit $32.84B by June 2018 according to the Association of Lebanese Banks (ABL), down by 2.46% from the same period last year. In addition, the total number of cleared checks shrunk by 2.86% year-on-year (y-o-y) to stand at 5.88M by June 2018.