Lebanon sees its growth fall to -5.7% in 2024 and its GDP by -34% in 5 years

The decline in GDP in the short term would be caused above all by the reduction in private consumption and exports, which the first available microeconomic indicators seem to confirm. The PMI index fell from 47 points in September to 45 points in October, its lowest level since February 2021. Traffic collapsed at Beirut airport in October (-63% of passengers and -47% of aircraft movements) and the number of tourists fell by -24% over the first 8 months of the year. However, the tourism sector – largely driven by the diaspora – had been the main factor in stabilizing the economy in 2023 (tourism revenues represented 27% of GDP in 2023, almost as much as remittances estimated at 33% of GDP).

The social situation is increasingly worrying. Before the war, the World Bank estimated the absolute poverty rate (<$3/day) at 33% for the Lebanese population and 44% including Syrian refugees. While access to basic public services is increasingly limited, the influx of displaced people (between 800,000 and one million) has created a humanitarian crisis that risks increasing social tensions. The prospects for reconstruction are very uncertain, unless there is an end to political and institutional inertia and the implementation of structural reforms (starting with the restructuring of the banking sector). The destruction of capital – $3.4 billion estimated at the end of October by the World Bank – will weigh on potential growth, already very weakened by the collapse of the banking sector and public services. Steering the reconstruction requires a functional Lebanese State, while its financing implies that the international community can grant loans in view of the amounts at stake, which is difficult to envisage without macro-financial consolidation of the country.

The international community will also have to relearn how to work with state structures, which it has largely bypassed in recent years. Structural reforms are equally necessary to halt the underlying trend that has been underway since 2019, which has seen the Lebanese economy become informalized and downscaled. The formal private sector, already weakened by the shortage of bank financing and prohibitive energy costs, is recording significant losses due to the war ($5.1 billion in 12 months according to the World Bank), and is losing market share to informal players. The shortage of quality jobs is thus expected to worsen, further encouraging skilled emigration, which will increase the economy’s dependence on the diaspora.

This alarming observation demonstrates the need to support the most productive Lebanese companies by providing them with suitable financing tools. In the absence of a surge in favor of reforms, Lebanon risks becoming anchored in a paradigm of underdevelopment, in which international aid in the form of donations, directed towards vulnerable populations (estimated at more than $1 billion/year before the war), will constitute an additional financial income. Source: French Embassy in Lebanon