Two former Lebanon premiers call for aid

▶ Saudi Arabia’s PMI hit its highest level in five months and UAE economic activity expanded for a second month

As Lebanon reels from an explosion that eclipsed the worst bomb attacks and assassinations it suffered in decades, two former prime ministers urged the world to immediately support the country, which now faces a potential food security crisis.

“The scale of the destruction, by any standard, is more than an earthquake,” former Lebanese premier and finance minister Fouad Siniora told The National.

“What is required now is physical assistance, emergency aid, health assistance, and immediate assistance that addresses the wheat shortage. Lebanon needs intensive care from the international community after the erosion of confidence in the government.”

Nassib Ghobril, chief economist at Byblos Bank, said the explosion would have wide consequences given the effect on the retail industry, the private sector and banks.

“The explosion will definitely have a devastating impact on the economy. It’s too early to put a figure on the losses, but they are at least in the several billion dollars,” Mr Ghobril said. “My estimate for economic activity in 2020 on Tuesday morning was a contraction of 18 per cent. Now with what is happening we are likely to see an even deeper contraction.”

The IMF had projected Lebanon’s economy to shrink 12 per cent this year because of the economic crisis and Covid-19. Unemployment in the short term given the devastation of the explosion and its effect on businesses will increase, Mr Ghobril said.

Lebanon was already facing its worst financial crisis and defaulted on $31 billion (Dh114bn) of eurobonds in March. It turned to the IMF in May for a $10bn bailout package. IMF negotiations have stalled, and the economy deteriorated further, with the Lebanese pound plunging more than 80 per cent. Inflation soared to 90 per cent in June and unemployment is widespread and on the rise.

“Definitely it’s a new page, it’s a new chapter in fact,” former premier and billionaire businessman Najib Mikati told The National.

“We’re dealing with catastrophic damage. We need help from everywhere.”

The Arab world’s two largest economies, Saudi Arabia and the UAE, continued to recover from the coronavirus-induced slowdown as movement restrictions were eased and the number of infections continued to decline.

IHS Markit’s seasonally adjusted purchasing managers’ index for Saudi Arabia, a composite gauge designed to give a picture of operating conditions in the non-oil private sector economy, stood at 50 in July, up from 47.7 in June.

The increase is the highest in five months and signals overall stability in operating conditions in the kingdom.

A reading above the neutral 50 mark indicates economic expansion, while anything below points to a contraction.

“The July PMI scoring exactly 50 is a clear indication that the Saudi non-oil private sector is over the worst of the disruption caused by the pandemic,” said Trevor Balchin, IHS Markit’s economics director.

The latest figure is the highest since February but well below the long-run trend level of 57.1, he said.

The volume of new orders placed with the kingdom’s non-oil private sector companies was broadly stable last month, after having declined over the past four months due to movement restrictions introduced to curb the spread of the virus.

Data indicated a resilience in domestic demand, despite a continued fall in new export orders, according to the survey.

Several companies said improved conditions and a focus on marketing activities had boosted business.

Non-oil private sector employment in Saudi Arabia fell for the fifth consecutive month but at a slower pace than June’s record decline.

Companies continued to reduce the size of their workforces to minimise business overhead costs.

The 12-month outlook for non-oil business activity also improved last month, with the Future Output Index exceeding 50 to hit a five-month high.

IHS Markit’s seasonally adjusted PMI reading for the UAE advanced to 50.8 in July, from 50.4 in June, as business conditions improved for a second successive month. New business growth was behind a solid improvement in non-oil economic activity.

The further easing of movement restrictions helped boost customer demand at the beginning of the third quarter and the latest increase was solid, coming on the back of an expansion in June.

The growth in total demand encouraged UAE companies to expand output last month and the pace of growth was the fastest in 10 months.

According to survey respondents, new projects and an increase in marketing activities were partly responsible for the growth.

“UAE business activity continued to expand at a solid pace in July, as [companies] enjoyed another upturn in new work,” David Owen, an economist at IHS Markit, said. “The further reopening of the economy ... helped to reinvigorate consumer spending.”

However, future sentiment on output is dependent on how demand recovers amid hopes by companies that the economy will recover to pre-coronavirus output levels in the second half, Mr Owen said.

Egypt also returned to growth last month as non-oil private sector output grew for the first time in a year, albeit mildly.

New business expanded as export conditions in the country improved, leading to slower declines in employment and stock levels.

The country’s PMI reading of 49.6 was up from 44.6 in June and the closest to the neutral 50 mark in 12 months.

“While the headline index posted at 49.6, it was the output and new orders sub-indexes that gave confidence of the start of an economic recovery in July,” Mr Owen said.

“Both indicated monthly expansions for the first time in 12 months, after the series signalled the worst economic downturn in its nine-year history during the Covid-19 crisis.”

The improvement in the nonoil economies of Saudi Arabia, the UAE and Egypt is in line with the PMI readings of some emerging and developed markets.

China’s factories expanded at the fastest pace in about 10 years last month as domestic demand increased, pushing the Caixin/Markit Manufacturing Purchasing Managers’ Index to 52.8, up from 51.2 registered in June.

The country’s Business Activity Index for July slipped to 54.1, down from 58.4 in June. While it was lower than in the previous month, the index again signalled a marked rise in activity that was in line with the survey’s long-term trend.

Eurozone factories also mirrored the Chinese recovery last month, with the IHS Markit Eurozone Manufacturing PMI at 51.8, up from 47.4 in the previous month.

Spain posted the strongest economic performance overall, with a PMI reading of 53.5.

UAE business activity expanded at a solid pace in July, as companies enjoyed another upturn in new work DAVID OWEN IHS Markit economist