Lebanon Economic Forecast

The economy remains depressed so far in 2023 amid political paralysis and an unresolved banking crisis, after likely contracting for the fifth consecutive year in 2022. The private-sector PMI indicated worsening operating conditions for firms through April. Moreover, price pressures have intensified dramatically following a series of recent currency devaluations and depreciation in the black-market lira, which has lost over half its value so far this year. That said, rising visitor arrivals through March will be providing support, and PMI data indicated the first rise in overseas business in nearly two years in April—potentially linked to the weaker exchange rate. Following a staff visit in March, the IMF urged deep structural reforms, which are a precondition for any financial assistance. However, the likelihood of such reforms materializing this year is slim.

Inflation hit an all-time high of 264% in March from 190% in February. Inflation will be far higher than in any other country in the region this year due to currency devaluations and the weak black-market lira. Further devaluations and downward pressure on the parallel-market FX rate are upside risks, while an improvement in the political situation is a downside risk.