Lacking a government that can implement essential economic reforms and hit by the fallout of the Russian invasion of Ukraine, Lebanon is facing its fifth consecutive year of economic contraction, Emirates NBD said in a note on Monday.

The Dubai-based lender, which had earlier in the year expected the beleaguered Levantine economy to return to growth in 2022, has now downgraded its real GDP growth forecast for the year to a contraction of -1.7 percent from a modest expansion of 2.9 percent.

This would leave the GDP -39.4 percent smaller in real terms compared to 2017, said Daniel Richards, MENA Economist.

"In 2023, we forecast a modest return to growth at 2.4 percent, but this is as much a product of base effects following the recent troubles as any expectation of a marked improvement in conditions – though the chance of a new IMF deal offers significant upside risk."

Lebanon, which defaulted on debt in 2020 and is in dire need of external support, saw a glimmer of hope in April, when the IMF agreed to initiate steps to back a new support programme. However, soon after Lebanon went to the polls, and as of the end of June, there is still no government in place.

"With still no direction from government, any progress on the IMF’s action points remains unlikely, especially given the various competing interests that will be affected by any steps forward – not least with regards the problematic issue of the financial system’s collapse, and who will shoulder the burden of this," said Richards.

The losses are believed to be in the region of $73 billion at present.

Meanwhile, the depreciation in currency has added to the inflation, which has averaged over 217 percent y/y over the five months to May. Rising wheat prices, due to the Ukraine crisis, will keep price growth elevated, the report said.

Higher fuel prices are also hitting the economy, with fuel shortages dampening activity still further, and the PMI survey has remained consistently contractionary over recent years, averaging 47.5 from January to May this year.

(Writing by Brinda Darasha; editing by Seban Scaria)