Challenging domestic conditions, external headwinds arising from the war in Gaza, which dented sales and in turn, economic activity levels, weighed on Lebanon's private sector businesses, a survey showed on Wednesday.

The decline in total new business intakes was the quickest since January 2023, S&P Global's BLOM Lebanon Purchasing Managers’ Index (PMI) report said.

The headline PMI fell in May to 47.9, down from 48.9 in April and its lowest reading since the beginning of 2023.

Overall, the moderate and accelerated deterioration in the health of Lebanon's private sector economy, was the steepest in nearly a year-and-a-half.

The slowing of business activity was due to a significant decline in output, new orders and new export orders, said Helmi Mrad, research analyst at BLOMINVEST Bank.

The drop in new orders was ascribed to the rising geopolitical tensions as the war between Israel and Gaza widened, reaching Rafah, as well as the increasing military activities on the southern border of Lebanon.

"Despite the fall, May’s PMI report showed two positive signs. First, employment stabilised as labour expenses remained steady. Second, output prices charged by private sector companies decreased," said Mrad

He, however, hoped that a good tourist season this summer will improve private sector activity.

Firms surveyed indicated there was a deterioration in business sentiment in May, with companies turning more pessimistic towards the 12-month outlook.

There was a further increase in overall input costs, which was driven by purchase prices. However, the rate of inflation in total operating expenses was only marginal and the softest since January. Prices charged by private sector firms in Lebanon fell for the first time in just over a year.

Lebanon is in the grip of what the Word Bank called the worst economic and humanitarian crisis of the past 150 years. The meltdown which began in 2019, caused hyperinflation to hit 170% in 2022, but has since declined progressively, dropping to 59.7% in April 2024.

(Writing by Brinda Darasha; editing by Seban Scaria)