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Lebanon’s economy needs a ‘major shock’ to see growth

People walk near closed shops after clashes broke out in the northern city of Tripoli, Monday, May 27, 2013. (The Daily Star/Antoine Amrieh)

BEIRUT: The extension of Parliament’s term and the prospect of forming a new government will have little impact on the Lebanese economy but may slow the worsening of financial indicators until a resolution of the Syrian crisis, experts told The Daily Star.

Ahead of Friday’s Parliament session when MPs are expected to extend their term of office until the summer of 2014, a leading economist said an agreement that might follow on the formation of a Cabinet could help stabilize an economy by boosting confidence.

“Though postponing parliamentary elections suggests dysfunctional state institutions, future success in forming a government might provide some sense of security that could help avoid further deterioration in consumer and business confidence,” Head of Economic Research at Byblos Bank Nassib Ghobril said.

But Ghobril predicted the impact would be minimal, warning that growth would only pick up following a major positive political shock of the magnitude of the Doha Accord.

The accord regionally sponsored by Qatar, Saudi Arabia and Syria in 2008 ended bloody clashes between the country’s rival political camps, paving the way for parliamentary polls that led to the election of President Michel Sleiman and the formation of a national unity Cabinet.

“The resolution of the conflict in Syria would be a similar positive shock to [Lebanon as] the Doha Accord,” Ghobril said.

Five years after the Doha Accord, the country appears to be again on the brink of another major confrontation between the Hezbollah-led March 8 camp, a staunch ally of Syrian President Bashar Assad, on the one hand and the Saudi-backed March 14 coalition on the other.

This time, however, with Saudi Arabia and Qatar backing the rebellion against Assad’s regime, a regionally sponsored dialogue to bridge the gap between rival Lebanese factions seems quite unlikely.

Even without such a dialogue, former Finance Minister and economist George Qorm maintains that the Lebanese economy remains resilient despite security incidents sweeping the country.

“Despite the fact that the wealth and prosperity is concentrated in the hands of few affluent people and some luxury districts in the capital, the Lebanese economy is managing with or without a government,” he said.

Playing down the significance of some worsening economic indicators, Qorm accused the media of highlighting negative numbers to push political agendas forward, which was weighing negatively on confidence.

“The economy is part of what is said in the media and while indicators remain mixed, the numbers look good compared to regional countries in crisis,” Qorm added.

However, there is no shortageof negative forecasts for the the country’s economic future. After nearly 8 percent growth in GDP between 2008 and 2010, the IMF forecasts real GDP growth at 2 percent in 2013, following a revised estimate of 1.5 percent for 2012 and 2011.

The tourism sector, which accounts for 9.3 percent of GDP, according to a World Tourism and Travel Council forecast in 2012, is feeling the ripples of the deteriorating security situation after GCC countries warned their citizens, who make up for 40 percent of tourist spending, against visiting Beirut.

Following a 23.7 percent decline in 2011, the number of tourists dropped 17.5 percent in 2012 and the trend continued in the first quarter of 2013 with a further decline of 12.5 percent.

Foreign direct investment also plunged by 68 percent in 2012 compared with the previous year, the second highest decline among emerging markets, according to data from the Institute of International Finance.

FDI totaled $1.1 billion in 2012, down from $4.8 billion in 2009.

 
A version of this article appeared in the print edition of The Daily Star on May 31, 2013, on page 5.

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