17 July 2008

BEIRUT: Business Monitor International (BMI) said Wednesday that three factors are posing a serious threat to Lebanon's economy: sharp inflation, better job opportunities for highly skilled Lebanese abroad, and the long road to recovery ahead of the country's tourism sector.

BMI, an online rating agency specialized in emerging countries, also noted that government spending and external funding remain the major drivers of growth by expenditure, in an economy characterized by low domestic demand.

"The decline of the industrial sector, which has always been a big employer, had negative repercussions on consumer spending and investor confidence. Moreover, high inflation is another drawback to consumer confidence," BMI said in its report.

It added that the economy may get a boost from the minimum wage hike announced on May 6, although the move might push up business costs.

BMI estimated that inflation would reach 10.3 percent year-on-year by end of March 2008. Although global oil and food prices and a weak currency remain upside risks to inflation, the agency anticipates only moderate inflation at an expected yearly rate of 6.0 percent at end-2008.

The report added that although Lebanon's exports are low in volume when compared to its imports, those exports have demonstrated a remarkable resilience amid ongoing volatility in the local political and economic fronts.

"Indeed, exports are continuously registering year-on-year growths in each month of 2008, thereby contributing positively to overall growth," it said.

BMI also expected growth in gross fixed capital formation, thanks to Lebanese expatriates, donor aid and Gulf investment.

"Furthermore, if, against expectations, the government goes through with privatization deals, then this would pose a substantial lever for growth. Another positive addendum to Lebanon's growth story is that much of the funding from the Paris III conference has yet to filter through."

The report went on to note that the Lebanese stock market  has appeared relatively immune to sporadic security incidents. BMI pointed out that at the time of writing the report, June 2008, the Blom Stock Index had risen by 51 percent since August 2007. This was largely attributed to the country's banking sector, a pillar of Lebanon's economy. - The Daily Star

© Copyright The Daily Star 2008.

 

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