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Insecurity takes toll on business activity

BEIRUT: Lebanon’s deteriorating security situation led in August to the sharpest fall in private sector business activity in six months, a survey showed Wednesday. The seasonally adjusted BLOM Lebanon Purchasing Managers Index, compiled by data firm Markit, dropped to a six-month low of 45.5 in August, compared to 47.9 in July, signaling an increasing economic contraction rate.

Readings above 50.0 signal growth and an improvement in business conditions on the previous month, while readings below 50.0 signal contraction.

The survey data are compiled from around 400 private sector companies that represent the structure of the Lebanese economy, based on the contribution of each of the manufacturing, services, construction and retail sectors to GDP.

August data signaled a sharper fall in output, new orders and employment compared to July.

The output and new orders indexes dropped respectively to 42.7 and 42.1, compared to 46.2 and 46 in July, while the employment index fell to 49.1, from 49.9 a month earlier.

The survey said that respondents attributed the decline mainly to increasing concerns over security issues that have had a negative impact on tourism.

On Aug. 2, large-scale clashes broke out in Arsal, on the Lebanese-Syrian border, between the Army on the one hand and fighters of the Al-Qaeda-affiliated Nusra front and ISIS on the other.

At least 17 soldiers were killed and 30 were kidnapped by the time the clashes ended five days later. Out of the 30 kidnapped soldiers, 23 remain in captivity, while one was brutally executed this week. ISIS posted the video of his beheading on social media.

According to experts, the spillover of the Syrian war into Lebanon dealt a strong blow to the tourism sector, which is mainly dependent on wealthy Gulf visitors, who account for more than 60 percent of tourism spending.

On top of a deteriorating security situation in Lebanon, a loss of export due to instability in Middle East and North African countries – mainly in Iraq – also contributed to the decline in new orders placed with companies, the report said.

“Clashes between the Lebanese Army and ISIS militants in the Bekaa region, in addition to the ongoing domestic political deadlock concerning the presidential elections, took their toll on the economy and particularly on tourism,” Fadi Osseiran, general manager at Blominvest Bank, said about the latest index results.

“Demand weakened and the level of business activity fell sharply with new export orders’ being hit by the worsening security situation in Iraq. The outlook for the coming few months remains challenging on both the security and political fronts, thus weighing on economic activity,” he added.

Inventory levels fell, ending a two-month period of rising stocks, while a lack of pressure on suppliers resulting from the drop in buying levels led to an improvement in their delivery times in August, the report said.

Average output prices also fell in August for the seventh time in the past eight months amid competitive pressures and weakness on the demand side, while businesses recorded a drop in their average costs for the first time in five months.

The PMI composite index is calculated as a weighted average of five components: new orders (30 percent), output (25 percent), employment (20 percent), suppliers’ delivery times (15 percent) and stocks of purchases (10 percent).

 
A version of this article appeared in the print edition of The Daily Star on September 04, 2014, on page 5.

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Summary

Lebanon's deteriorating security situation led in August to the sharpest fall in private sector business activity in six months, a survey showed Wednesday.

August data signaled a sharper fall in output, new orders and employment compared to July.

The output and new orders indexes dropped respectively to 42.7 and 42.1, compared to 46.2 and 46 in July, while the employment index fell to 49.1, from 49.9 a month earlier.

The PMI composite index is calculated as a weighted average of five components: new orders (30 percent), output (25 percent), employment (20 percent), suppliers' delivery times (15 percent) and stocks of purchases (10 percent).


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