Lebanon and Syria Business Projection Industry Update Quarter 1 2012

  • December 2013
  • -
  • Business Monitor International
  • -
  • 49 pages

Core Views

Although we expect growth to accelerate slightly in 2012, we stress
that the pace of economic expansion will remain somewhat anaemic.
The ongoing crisis in Syria is likely to keep tourist arrivals in Lebanon
low over the coming quarters, while instability on the border will only
further disrupt supply chains and goods exports.
Although having so far avoided large-scale unrest, the security
environment in Lebanon is expected to remain tenuous. Clashes
on the border with Israel cannot be ruled out, and violence spilling
over from Syria also remains a distinct possibility.

Major Projection Changes

We have revised up our 2012 budget deficit projection, and are now
projecting a shortfall of 9.1% of Gross Domestic Product . Tax revenues will remain
weak over the coming quarters, and the possibility of Beirut passing
a long-awaited budget for 2012 could see expenditures accelerate
quite rapidly.

Key Risks To Outlook

Given Lebanon’s reliance on foreign capital to finance domestic
demand (as evidenced through its large current account shortfall),
a marked deterioration in regional or global capital industry s over the
coming quarters could slow financial inflows, which would negatively
impact growth.
Ongoing unrest in Syria poses a distinct risk to Lebanon’s economic
and political stability. A prolonged period of public unrest would not
only increase refugee inflows, but would also result in a significant
slowdown in much-needed tourist arrivals.

Table Of Contents

BMI Risk Ratings ............... 5
BMI Risk Ratings - Lebanon.6
BMI Risk Ratings - Syria.......7
BMI Risk Ratings - Middle East Data s.............. 8
Executive Summary - Lebanon....... 11
Core Views ..........11

Major Projection Changes
.....11
Key Risks To Outlook .........11
Chapter 1.1: Political Outlook - Lebanon........ 13
Industry SWOT Analysis 13
Domestic Politics............. 14
Crisis Averted, But Stability Still Elusive.............14
We have little reason to believe that Lebanon’s political risk profile will improve markedly in 2012. That Prime Minister Najib Mikati’s
government was only able to narrowly avoid collapse in late November 2011 simply highlights the uncertain policy climate and the
lengths which must often be reached in order to avoid crises.
TABLE: Lebanon - POLITICAL OVERVIEW.............. 14
Long-Term Political Outlook ........... 15
Political Upheaval Inevitable In The Long Term?15
Political stability will remain hard to come by in Lebanon over the coming decade. However, despite the range of challenges facing the
government, we believe that major political upheaval will not occur without an external trigger, with a military conflict the most obvious
candidate.
Chapter 1.2: Economic Outlook - Lebanon..... 19
Industry SWOT Analysis 19
Economic Activity............ 20
Economy Entering A Rough Patch......20
Downside risks to the Lebanese economy are becoming increasingly pronounced on the back of the ongoing crisis in Syria and political
paralysis in Beirut. We have pencilled in real Gross Domestic Product growth of 3.2% in 2012, with remittances likely to provide a key base of support for
household consumption.
TABLE: Lebanon - Gross Domestic Product BY EXPENDITURE ............. 20
Fiscal Policy.... 22
Budget Deficit To Widen In 2012..........22
We are pencilling in a slight deterioration to Lebanon’s fiscal accounts in 2012, as weaker-than-expected revenue streams and a rampup
in current spending push the budget deficit to 9.1% of Gross Domestic Product, compared to an expected 7.2% in 2011.
TABLE: Lebanon - FISCAL POLICY......... 23
Monetary Policy................ 24
Inflation To Trend Lower.....24
Consumer price inflation in Lebanon will trend lower in 2012 as the ongoing downtrend across the global commodities complex and
weaker economic activity domestically weighs on headline prints. We project average annual consumer price inflation of 4.4% y-o-y
in 2012, down from an expected 5.3% in 2011. The main upside risk to our projection stems from the potential for a greater increase in
government spending than currently expected.
TABLE: Lebanon - MONETARY POLICY. 24
Chapter 1.3: 10-Year Projection - Lebanon....... 27
The Lebanese Economy To 2021..... 27
Long-Term Growth Depends On Structural Reforms..........27
Lebanon’s economy will face a host of structural challenges in attempting to meet its long-term growth potential, with a massive
infrastructure deficit, elevated public debt load and ongoing political risk weighing on our outlook through 2021.
TABLE: Lebanon - LONG-TERM MACROECONOMIC FORECASTS ........ 27
Chapter 1.4: Business Environment - Lebanon............... 29
Industry SWOT Analysis 29
Executive Summary - Syria............. 31
Core Views ..........31

Major Projection Changes
.....31
Key Risks To Outlook .........31
Chapter 2.1: Political Outlook - Syria.............. 33
Industry SWOT Analysis 33
Domestic Politics............. 34
International Pressure Will Not Bring A Voluntary Resignation..........34
Multilateral action to squeeze the Syrian regime of President Bashar al-Assad will be too weak to bring about significant change, and
bilateral efforts by the West will have a substantial economic impact but fail to change his policies towards protestors.
Foreign Policy.. 35
Intervention Prospects Rising, But Major Obstacles Remain..............35
The prospect of foreign intervention in Syria is rising, but there continue to be many obstacles. If external intervention were to take
place, it would most likely consist of a Turkish-controlled buffer zone in the north of the country, rather than a NATO air campaign.
Long-Term Political Outlook ........... 37
‘Post-Assad’ Era Likely To Increase Instability...37
Syrian President Bashar al-Assad and his regime are fighting for survival, but regardless of whether it endures or is overthrown, the
country’s leadership will struggle to improve governance and deliver robust economic growth.
Chapter 2.2: Economic Outlook - Syria........... 41
Economic Activity............ 42
Dismal Growth Prospects Ahead.........42
Syria’s degenerating political situation will have a knock-on effect on growth, and we have pencilled in real Gross Domestic Product growth rates of -2.2%
and 1.1% in 2012 and 2013 respectively.
TABLE: Sy ria - ECONOMIC ACTIVITY...... 42
Exchange Rate Policy...... 43
SYP: Waiting For A Big Drop ..............44
TABLE: Sy ria - Ex change rate............ 44
Chapter 2.3: 10-Year Projection - Syria.............. 47
The Syrian Economy To 2021.......... 47
Weak Human Capital To Constrain Growth ........47
Private consumption, foreign investment and infrastructure development will drive growth in Syria over the coming decade, though we
note that the effectiveness of these drivers depends in part on the success of structural reforms.
TABLE: Sy ria - LONG-TERM MACROECONOMIC FORECASTS ............... 47
Chapter 2.4: Business Environment - Syria.... 51
Industry SWOT Analysis 51
Chapter 3: BMI World Assumptions ............... 53
Eurozone Break-Up Risks Rising .......53
TABLE: GLOBAL ASSUMPTIONS ................ 53
TABLE: DE VELOPED STATES REAL Gross Domestic Product GROWTH FORECAST .............. 54
TABLE: REAL Gross Domestic Product GROWTH CONSENSUS FORECASTS ......... 54
TABLE: EMERGING MARKETS REAL Gross Domestic Product GROWTH FORECAST ............. 55

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