Lebanon's economic growth is projected at 3.5% in 2012 by Standard Chartered, relative to 1.5% in 2011, considering that the main risk to the outlook relates to the possibility of further spillovers of the Syrian conflict into Lebanon, as reported by Lebanon This Week, Byblos Bank economic publication.
It said spreads on Lebanese Eurobonds and on five-year Credit Default Swaps have widened in recent weeks due to heightened regional political risks as well as increased market-wide risk aversion. It expected spreads to tighten once the overall risk environment improves. It added that the economy is rebounding based on indicators covering the first four months of the year, but cautioned that the figures are inflated due to a low base effect.
However, it pointed out that the latest available data does not reflect the impact on the economy of the recent security deterio- ration in several parts of the country. It noted that the components of Lebanon's GDP are highly volatile and that trends can reverse abruptly. As such, it expected economic growth to slow down in the coming quarters.
In parallel, Standard Chartered said that the banking sector's deposit growth rate constitutes one of the key risk indicators. It pointed out the strong link between bank lending and bank deposits, and the stronger relationship between lending and economic activity. It added that these links highlight the significance of foreign deposit inflows for lending and economic activity. It said that the sector's private-sector deposits grew by 2.6% in the first four months of this year and by 8% year-on-year. In parallel, Standard Chartered pro- jected the fiscal deficit at 7% of GDP this year relative to 7.5% of GDP last year.
It forecast Lebanon's current account deficit to nar- row to 16% of GDP in 2012 from 17.5% of GDP in 2011. It anticipated the inflation rate at 4.8% this year, relative to 5% in 2011.
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