The prolonged political stalemate in Lebanon ended with the election of President Aoun in October 2016 and the subsequent formation of a unity government. Since then political leaders have agreed on the long-disputed parliamentary election law, salary scale adjustment and the public-private partnership law. The protracted Syrian crisis and the slow pace of structural reforms are critical impediments to achieving potential growth. Significant macro-financial risks remain.
For 2017, the real GDP growth rate is projected at 2 percent, unchanged from 2016, with the main driver being services, and tourism in particular. During the first five months of 2017 (5-M 2017), tourist arrivals rose by 12.8 percent (yoy), while hotel occupancy rates averaged 65.2 percent, with the latter registering an increase of 8.4 percentage points (pp) over 2016 and the highest rate since 2012. From the demand side, the three-year (2014-2016) decline in the contribution of private consumption to GDP growth seems to be abiding, as is the offsetting three-year improvement in the contribution of gross fixed capital formation. For 2017, growth seems to be solely driven by net exports of goods and services; this is due to a recovery in exports, a low base effect, and stagnation in imports. Structurally, the economy remains heavily based on services (especially real estate, retail and financial services) and oriented towards the region, rendering it vulnerable to volatility in growth and sizable macroeconomic imbalances.