Major recovery in 2013 unlikely

HSBC: banks highly tolerant of political risk

A meaningful recovery in growth next year remains remote as long as political tensions are high, according to HSBC’s Macro Middle East Economics report for the fourth quarter of 2012.

The banking group, however, pointed to the banking sector as being highly tolerant of political risk, supported by large-scale stable inflows from expatriates, a stable currency, increased foreign currency reserves, and growing private sector lending. But it said that relative financial stability is not translating into growth.

The report said the budget deficit would likely widen this year and the next, as a weak growth environment adds to the pressures on public finances. It pointed to the sovereign’s high cost of borrowing, having issued a recent ten-year local currency debt last month worth $785 million at a rate of 8.24 percent. But it said this rate remains relatively low as it represents half of what the much less indebted Egyptian government paid on its recent ten-year issue.

The report said that tourism, industry, and trade indicators are all weak, and that as such the bank has marked down its estimates for growth this year to 1.9 percent. It said that although the (public sector) salary hikes may give a temporary boost to consumption, the impact on real incomes will be offset by marked gains in inflation, which hit nine percent in August.

The report said the conflict in Syria posses a threat to political order and economic stability in Lebanon. It warned that “evidence that the Syrian war is moving towards its end-game would likely escalate tensions between pro and anti-regime groups in Lebanon further.”

The report said that despite financial stability and a high-profile visit by the Pope, a series of politically-linked kidnappings over the summer, clashes on both the border and in main cities, illustrated the strain that the conflict in Syria is imposing on its neighbor.