The spillover effect weighs down economy

Real sector indicators show slowdown, but
no recession, says Audi’s half year report

The continuing spillover effect from regional turmoil and security incidents have caused the real economy to lose steam in the second quarter of the year, according to Bank Audi’s economic report for the second quarter of 2012. While most real sector indicators show an economic slowdown, the economy managed to avoid recession while sustaining monetary and financial stability.

The trade deficit widened still more in the first six months of 2012, up by 22 percent year-on-year, which put additional pressure on the balance of payments. Imports grew by 18 percent, while exports rose by three percent. Agricultural exports fell by four percent to $93 million. Industrial exports grew to $2 billion, up by 2.7 percent. Imports of industrial machinery fell by 15 percent y-o-y.

The real estate market remained at a standstill in the first half of the year. While the value of property sales grew by eight percent, to $4 billion, the number of transactions fell by eight percent. Construction permits witnessed a significant decrease of 15.6 percent to 8.8 million square meters.

Monetary conditions were marked by a moderate expansion in money supply, net currency conversions in favor of the lira, and a new record high for the Central Bank’s foreign assets that reached $35 billion. Inflation remained contained at an annual rate of 5.1 percent at end-June.

Banking indicators saw relatively moderate growth as total assets grew by $5.3 billion, 18 percent lower than the increase witnessed over the corresponding period last year, and 15 percent below the average growth registered over the last five years. Operating conditions continued to be tough for banks. Domestic net profits reported a net contraction of around four percent over the first five months, the second consecutive earnings contraction for Lebanon’s banking sector.

Capital markets saw a drop in equity prices, an expansion in bond spreads, and a rise in the cost of issuing debt. The Beirut Stock Exchange (BSE) price index reported a drop of 3.3 percent, a net contraction for the third consecutive year.

Reported by Hanadi Chami