Country Report Lebanon December 2008

Outlook for 2009-10

• The national unity government is expected to survive until the May 2009 parliamentary election, but it will stay divided, as agreement between the various parties and sects on many important policy issues remains elusive.
• Increasingly bitter disputes and shifts in political alliances are likely in the run-up to and aftermath of the election, raising political risks in 2009-10.
• The combination of political divisions and the global economic downturn is likely to limit progress with economic reform and privatisation plans.
• The fiscal deficit is projected to narrow slightly to 8.3% of GDP in 2009 before widening again to 9.3% of GDP the following year.
• Global GDP growth is set to fall sharply in 2009, with only a patchy recovery in 2010. Middle East growth will be pulled down as oil prices weaken.
• Lebanon's real GDP growth is forecast to contract to 2.7% in 2009, as world trade and investment suffer, picking up marginally to 3.3% in 2010.
• The Economist Intelligence Unit expects average consumer price inflation to decline gradually over the outlook period, to 5.8% in 2009 and 3.5% in 2010.
• We forecast that the current-account deficit should narrow to around 1% of GDP in 2009, as import prices fall, before widening to 4.7% of GDP in 2010.

Monthly review

• Michel Aoun, the interior minister, Ziad Baroud, and the army commander, Jean Qahwaji, have made high-profile visits to Syria. The "March 14th" movement has argued that in future such visits should be approved by cabinet.
• The president, Michel Suleiman, visited Iran and signed a security agreement, which could lead to Iran supplying weapons to the Lebanese army, in an apparent attempt to counterbalance his visit to the US in September.
• The UN has announced that its tribunal to try those suspected of involvement in the assassination of Rafiq al-Hariri will open on March 1st 2009.
• The fiscal outturn for the first three quarters of 2008 shows a 16% increase in government revenue and 14.5% rise in expenditure. Revenue was boosted by VAT from booming consumption after May, expenditure by high oil prices.
• Encouraging data show a 28.9% year-on-year increase in tourist arrivals until October, and indications of strong performance in real estate and trade (up 38%) driven by the boom in Gulf Arab countries.
• Lebanon's banks have boosted profitability and retained strong balance sheets, with deposits equal to 70% of total assets.

This report covers the following industry codes:
SIC Code: 60;70;15
NAICS Code: 52;72;23