EIU forecasts Lebanon's real GDP growth at 5.8 percent in 2010
Country proved its ability to buffer external shocks
The Economist Intelligence Unit (EIU) said in 2009 that Lebanon has proven its ability to buffer external shocks, and the year turned out to be one of the best for the country in terms of economic performance, and consequently real GDP growth. The report was published by Bank Audi Weekly Monitor.
The EIU forecasted an economic growth in Lebanon of 5.8 percent in 2010 and 5.5 percent in 2011, bearing in mind that such rates are deemed noteworthy, as they stem from a high base in 2009, since Lebanon was among the few MENA countries whose economies did not curb in 2009 as a result of the crisis.
According to the EIU, Lebanon’s forecasted real GDP growth rates in 2010 and 2011 compare well with the 3.1 percent annual average growth rate between 1998 and 2007, the last year for which actual data are available. It also indicated that there’s still room for further improving such forecasts, especially if the political scene in Lebanon continues to demonstrate stability.
“Exports of goods and services are likely to remain a strong driver of growth, as Lebanon benefits from renewed economic expansion elsewhere in the region, as domestic private consumption and investment growth remain constrained by the high cost of borrowing and as government consumption growth, though still positive, is curbed by the already large size of the fiscal deficit,” the EIU said.
It added that development will remain uneven across sectors and growth would be highly concentrated in the capital.
The EIU noted that the only risk that could threaten such healthy growth in Lebanon is political downturn.
Regarding inflation in Lebanon, the EIU indicated that it has dropped sharply in 2009, mainly because of lower world commodity prices.
In 2010 inflation is expected to pick up to an average of 3 percent as world commodity prices rise owing to strengthening global growth, before falling back slightly, to 2.9 percent, in 2011 as commodity price growth slows.
The trajectory of the US dollar, to which the Lebanese pound is pegged, could however alter such forecasts if it varies beyond expectations in the coming two years.
The note moved on to the country’s external sector and noted that Lebanon will continue to face a large, structural current-account deficit, which has averaged 13 percent of GDP a year over the past decade, but is usually offset by strong inflows of capital.
Despite the sharp drop in oil prices in 2009, data for January-September suggest that the trade deficit widened, as spending on non-oil imports increased and export earnings fell slightly.
However, the EIU estimated that strong growth in tourism receipts will have more than offset the trade deficit, taking the current-account deficit to 10 percent of GDP in 2009 from 10.5 percent of GDP in 2008.
The trade deficit is expected to widen in both 2010 and 2011 as the rise in the import bill more than offsets the rise in export earnings, especially in 2010 when oil prices are forecast to rebound strongly.
However, as tourism grows further and remittances from Lebanese working abroad advance further, the current-account deficit would contract to 8.7 percent of GDP in 2011.
Lastly, the formation of a new government should allow some progress with economic policymaking, which has largely remained frozen since the election campaign.
Privatization is likely to remain a sensitive issue and consequently, the structural fiscal deficit, which is driven mainly by the cost of servicing the massive public debt stock, is unlikely to be seriously addressed by spending cuts.
Lack of progress on the fiscal reforms sought by donors, along with global liquidity constraints, is likely to lead to further delays in disbursement of conditional aid pledged at the “Paris III” donor conference in 2007.
– The Daily Star
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