Outlook
A stronger real estate sector as well as a continued increase in tourist arrivals are expected to lead to a small pickup in economic activity in 2016, which nonetheless would persist to be sluggish and below potential. Lebanon’s economic prospects over the medium term are highly affected by geopolitical and security conditions, and those remain decidedly volatile. Projections assume that the Syrian war persists and that spillovers into Lebanon, while significant, remain contained. Based on this, we forecast growth over the medium term at 2.5% annually. Reaching pre-crisis rates is contingent on the resolution of the Syrian war in a manner that does not compromise the structure and stability of Lebanon, as well as on the resumption of the domestic political process.
Assuming oil prices will not fall much further, the benefits for Lebanon of cheap energy are likely to have plateaued in 2015 via (i) higher private consumption: an increase in the real purchasing power of consumers; (ii) stronger fiscal balance: smaller transfers to EdL; and (iii) improved balance of payments: less costly energy imports. However, even if oil prices do not increase, negative consequences could still materialize as fiscal buffers in the GCC countries erode and spending cuts ensue, signs of which are emerging, leading to a deceleration of remittances to Lebanon. This will impart further strain on the balance of payments.
Work to understand the impact of the influx of Syrian refugees on the host community is underway. The World Bank and the Central Administration of Statistics are also working on improving data quality in a future household budget survey, which is planned in 2017.
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