GDP growth at 2.5 percent
according to the World Bank

Stable growth forecasted until 2017

The Gross Domestic Product (GDP) is expected to grow by 2.5 percent in 2015 and to maintain this rate through 2017, according to a World Bank report, published this month.

“The country is facing the same pressure of local political tensions and repercussions of the civil war in Syria, which pushes the World Bank to maintain a stable economic growth forecast in the near to medium term,” said Wissam Harake, Economist at the World Bank-Lebanon.

The World Bank’s Global Economic Prospects report estimated the growth of the 2014 GDP by two percent, up from 0.9 percent in 2013.

The easing of security risks, a rapid credit growth, and an inflow of refugees supported domestic demand, which have lead to a lifting of the economy in 2014, according to the report.

“The economy is expected to show signs of improvement this year, as long as the political and security stability prevails in the country,” said Harake. “This improvement has been obvious since the beginning of this year,” he said.

Although growth momentum appeared to be flat in several oil-importing economies in early 2015, the report said that improved security, industrial production and tourism, especially from Arab countries, appear to have expanded in January and February.

Pegs against the US dollar caused a significant trade-weighted appreciation in 2014, especially since Lebanon is an importing country. Currency depreciations and the prevalence of administered fuel prices have limited the impact of lower global food and energy prices on domestic consumer prices. As a result, the report said that national inflation, which maintains exchange rate pegs against the appreciating US dollar, has turned negative.

“Deflation is mainly driven by lower fees in the communication sector, especially mobile fees, lower costs in the transportation sector with lower oil prices, and finally by the slowing of economic activity, which usually leads to lower inflation,” said Harake. “The effect induced by the communication and transportation sectors is expected to end in the third quarter of this year, when we expect inflation to increase again, but not to high levels,” he said.

As the euro depreciates with the quantitative easing of the European Central Bank (ECB), countries like Lebanon, Jordan, and Iraq, with US dollar pegs are especially vulnerable to losing competitiveness and growth momentum, the report said.

The country continued to receive capital inflows, while international banks were also active in the country’s sovereign bond issuance. The report said that improving investor confidence should attract capital inflows.

The need to provide basic services to refugees is placing pressures on government budgets in Iraq, Jordan, Lebanon, and Tunisia, all countries with substantial fiscal financing needs, government debt, and fiscal deficits, according to the report.

Official financing is expected to remain robust, both to finance budgets and to support refugee needs, according to the report.

“The country is providing a global public good in its efforts to host refugees, but the Syrian crisis has a socio-economic cost that it cannot handle without more support from the international community,” said Harake.