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BMI sees lower growth rate for Lebanon in 2009

05 February 2009

BEIRUT: Business Monitor International (BMI) revised downward its growth projection for the Lebanese economy for 2009 to 2.5 percent from 4.5 percent, citing negative external conditions, infrastructure shortages and a potential real estate correction as factors keeping growth below its potential, according to Lebanon This Week, the economic publication of the Byblos Bank Group.

It said Lebanon's relative insulation from the global financial crisis, as well as the low base of growth and the availability of financing from the donor community will keep the economy from outright recession, while decisive election results and an improvement in the reform outlook would lead to upside risks. It forecast growth to pick up again in 2010 to 4 percent, adding that growth in Lebanon is far below its potential and that the economy could be growing much faster for a state that is recovering from long periods of stagnation and is supported by billions of dollars in aid and loans. BMI's forecast is based on an ongoing unstable political situation with very slow, if any, progress on reforms. It noted that any major progress in the political situation or in terms of reforms would likely lift the growth rate closer to the 6-7 percent mark.

In parallel, BMI ranked Lebanon in 9th place in country risk among 15 countries it rates in the Middle East and Africa region. Lebanon ranked ahead of Iran, Algeria, Egypt, Kenya, Nigeria and Zimbabwe, and came behind Saudi Arabia, Jordan, Bahrain, Israel, South Africa, Kuwait and the UAE. Its score of 54 points was below the regional average of 55.8 points. The report said Lebanon's score and ranking reflect a high to medium level of risk associated with continuity in policy direction, as well as the degree of strength and balance of the country's economy, among other factors. It added that the key rationale behind the country's score includes the instability of the government, a poor legal framework and excessive red tape.

BMI noted that economic activity indicators have shown positive trends in 2008, and pressure on the Lebanese pound is, for once, on the upside. It anticipated government spending to remain elevated, as the state will continue to spend, irrespective of the level of the deficit, in order to maintain stability.

It said export revenues have grown strongly but still account for less than a third of import costs, resulting in net exports remaining a drag, rather than a driver of growth. It expected consumer spending to remain dependent on political stability, and to improve with a sustained period of political calm. It said inflation is still a threat, adding that it should start to recede toward the end of 2008 and early 2009. - The Daily Star

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