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Lebanon’s economy. What does the future hold?

In 2010, the country’s Gross Domestic Product (GDP) grew by 8 percent. The economic forecast seems to be less buoyant for 2011.

 

The cabinet formation in June 2011 could stop the deterioration in economic performance in the second half of 2011, Merrill Lynch indicated. However, it expressed caution over the near term, anticipating growth not to exceed 3 percent in 2011, as reported by Lebanon This Week, a weekly economic report published by Byblos Bank.

 

Similarly, the economic outlook was not so promising, by beginning of the year 2011. The continuous political turmoil would have a devastating impact on the economic growth and size of the debt relative to the GDP, anticipated analysts warning that the tourism and real estate sectors, the trade activity as well would be the most affected.

 

“Lebanon’s economy is facing major challenges”, was the consensus of many economic insiders. In their opinion, the rise of oil price and commodity prices particularly which affect purchasing power in addition to the turbulent situation in Arab countries, forcing many Lebanese to go back home searching for new job opportunities in their homeland.

 

The GDP growth was projected by the International Monetary fund (IMF) to drop to 2.5 percent in 2011.The International ratings agency "Moody's" anticipated a decline in Lebanon's economic growth rate to 5 percent compared to 7 or 8 percent in 2010. “Merrill Lynch warned that political instability remains the key risk to the economic and financial outlook in Lebanon in 2011 and projected growth to reach 6 percent this year. It said growth is likely to slow down this year, despite the relative decline in political uncertainty since the designation of Najib Mikati as Prime Minister,”as reported by Lebanon This week.

 

“The slowdown was evident, as the coincident indicator rose by 6.2 percent annually in December and deposits grew by 12 percent year-on-year in November, constituting declines from annual growth rates that peaked at above 20 percent in early 2010,” according to Merrill Lynch.

 

Merrill Lynch, however, indicated that economic growth was still coming from a strong base, as real gross domestic product grew by 9 percent on average over the last three years, led by a construction boom, a surge in tourist arrivals and a buoyant retail sector. “The strong cyclical recovery had helped public finances and external balances, but the lack of political consensus had prevented the implementation of meaningful reforms.”

 

“Reactions to the verdict of the Special Tribunal for Lebanon, the report said, may destabilize politics further, slow deposit growth and increase dollarization rates. The real-estate sector may be the most affected sector from a sudden stop in capital inflows. The political stand-off would further delay the adoption of a budget and the implementation of structural reforms aimed at tackling the high level of public debt."

 

It’s worth noting that following the collapse of Saad Hariri’s government on January 12, some Lebanese have converted their savings into dollars or transferred money out of the country.

 

For some analysts, however, Lebanon has little to fear. The unstable political situation wouldn’t have a devastating impact on the economy. In their opinion, Lebanon's economy has been always able to survive despite the political turmoil it has passed through in recent years. The solid and robust banking sector would remain the backbone of the Lebanese economy as the Central Bank has $30 billion in foreign currency reserves which cover 78 percent of depositors in Lebanese pounds.

 

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