18 June 2009

BEIRUT: Regional investment bank EFG Hermes revised its estimate for real GDP growth in Lebanon from 3 percent to 4 percent in 2009, and kept its forecast at 3 percent for 2010, as reported by Lebanon This Week, the economic publication of the Byblos Bank Group. It said that further upgrades to its growth forecast will be contingent on a peaceful post-election period and a strong tourism season this summer.

It indicated that the March 14 coalition successfully retained its majority in the June 7 parliamentary elections, but did not expect it to govern outside the framework of a national unity Cabinet. But EFG Hermes considered that a national unity Cabinet would not be able to implement significant economic reforms, such as privatizing the mobile phone licenses or restructuring the money-losing Electricit? du Liban.

It noted, however, that the election cycle should allow for greater fiscal discipline in 2010 and expected a fiscal deficit of 10.2 percent of GDP next year, down from an estimated 11.8 percent in 2009. It added that deposit growth for 2009 looks strong, as deposits rose by 14.7 percent annually in March, and should be sufficient to cover the 2009 fiscal deficit.

According to EFG Hermes, the picture on economic growth is still mixed, as the Central Bank's coincident indicator of economic activity shows growth slowing in February and March 2009 to an average of 8 percent year-on-year, down from 11.7 percent annually in the second half of 2008.

Also, capital inflows are slowing, with a balance of payments deficit of $367m in March, the first negative result since May 2008.

In parallel, lending to the private sector is picking up, as credit rose 2.4 percent month-to-month in March 2009, after averaging 0.1 percent on a monthly basis in the previous six months stretching from September 2008 to February 2009.

It noted that pre-election tensions did not apparently deter tourism or limited credit growth, adding that tourism is an important source of economic growth and support for the balance of payments. It considered that much of the increase in tourism arrival numbers is due to base effects after political instability in the first five months of 2008, as well as by non-resident Lebanese coming to vote. - The Daily Star

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