Download Real estate to lag behind the economy in 2015,

ECONOMENA
LEBANESE
ECONOMIC
OUTLOOK
2015
ECONOMIC OVERVIEW
Real estate to
lag behind
the economy
in 2015,
banking to come out
on top, survey of leading
economists shows
from Economena Analytics
ebanon’s real estate
sector is expected to
lag behind the rest of
the economy in 2015,
according to the Lebanese Economic Outlook, a survey of 15 leading Lebanese
economists conducted by Economena
Analytics, an independent economic data provider. Six of the 15 surveyed
economists selected real estate as the
worst performing sector for 2015, reflecting widespread pessimism over activity
in the sector amid uncertain political
and security environments, and weak demand from foreigners.
Construction activity is also seen lagging behind in 12th place among 15 sectors, and growth in manufacturing activity, excluding food and beverages, is
expected to considerably underperform
the economy during the year.
“A stagnation in construction is expected due to the decrease in real estate
transactions by foreigners by 14 percent
L
48 BOLD | March 2015
Economist
Institution
Role
Mr. Alexandre
Mouradian
BLOMINVEST Bank
Head of Investor Relations
Dr. Annie Tortian
Haigazian University
Assistant Professor at the Faculty
of Business Administration and
Economics
Dr. Charbel Kordahi
Touch
Chief Financial Officer / Economist
Dr. Georges Nehme
Antonine University
Economist / Dean of the Faculty of
Business Administration
Dr. Hala Nassif
IPEMED
Consultant
Dr. Hasan Omar El Ali
Greystone Capital Group
International Project Finance
Dr. Hassan Hamadi
Notre Dame University
Professor
Dr. Jassem Ajaka
Ministry of Economy and Trade
Economic Advsor / Startegic Expert
Mr. Jihad Hokayem
Jihad El Hokayem
Chief Financial Market Strategist
Mr. Joe Faddoul
BML Istisharat
Chief Executive Officer
Ms. Joelle Samaha
Credit Libanais
Senior Economist
Mr. Nader Kayrouz
UNDP / FAO
Consultant Statistician
Mr. Roger Melki
Ministry of Finance
Economist / Consultant
Mr. Walid Abousleiman
Aksys Capital
Chief Executive Officer / Economist
Dr. Wissam Harake
The World Bank
Economist
The views expressed represent the personal opinions of individual survey
respondents, and not necessarily those of their institutions or employers.
CONSENSUS 2015 OUTLOOK
Note: -5 to +5, 0 indicating the same as in 2014
Increase in activity
Banking
2.38
Restaurants
2.31
Information and Communications
2.17
F&B Manufacturing
2.07
Insurance
Health And Social Care
Overall Economy
Wholesale And Retail Trade
Eductaion
Hotels
Public Spendings
Public Debt
2.07
Imports
1.79
Private Credit
1.64
Unemployment
1.53
1.92
Hotel Occupancy
1.50
1.85
New Car Sales
1.40
1.77
Tourist Arrivals
1.33
Private Deposits
1.31
Fastest
1.71
1.67
Moderate
IncreaseBBeirut Stock Index
1.29
1.58
Fiscal Deficit
1.21
1.53
Balance Of Payment
1.21
1.50
Remittances
1.17
Public Revenues (Taxes)
1.50
Transport
1.50
Construction
1.48
Manufacturing (Excluding F&B)
1.40
Real Estate
0.64
Real Estate Transactions
Slowest
Increase
0.93
Inflation
0.73
Exports
0.71
Real Estate Prices
0.57
Based on a survey by Economena Analytics conducted between January 5 - 19, 2015.
in 2014 as well as a lack of foreign investments, the absence of expats, and a tense
security situation,” said Dr. Hala Nassif.
The value of real estate transactions
in 2014 had increased by only 2.8% to
$8.95bn according to CADASTRE, while
the number of transactions rose by 2.2%.
Although still positive, the consensus
among participating economists indicated that realty prices would struggle to
hold at their current levels.
On the opposite side, five economists
chose banking as their top sector pick for
the year, while four said restaurants and
ICT would be the fastest growing sectors
in the economy. “The Lebanese banking sector enjoys a historically-proven
immunity towards internal or external
shocks, and is always praised for its encouraging performance even in times of
crisis,” said Joelle Samaha of Credit Libanais.
The increase in the resident population will also contribute to increased
ECONOMISTS
WERE
UNANIMOUS
IN THEIR
PESSIMISM
OVER THE
LOCAL
LABOR
MARKET
demand for health and social care, although refugees do at the same time contribute to the crowding out of domestic
private demand. In particular, Dr. Nassif
pointed to “limited resilience capacity
of the health system with an increased
utilization of around 50% for PHC and
hospital services.”
Tourism is also expected to improve in
2015 with nine economists forecasting
an increase in tourist arrivals during the
year, and none predicting a decline. Most
referred to the security situation as the
wild card which will drive much of the
tourism, hospitality, and to some extent
real estate indicators.
At the same time, economists were
unanimous in their pessimism over the
local labor market, with 14 of the surveyed economists anticipating an increase in unemployment in 2015, and one
projecting stable employment.
Opinions were somewhat divided over
the outlook for exports, private deposits, inflation, new car sales, and stocks,
although more of the expectations were
tilted towards an increase in all the aforementioned indicators.
If you are interested in participating in
the next issue of the Lebanese Economic
Outlook survey or for any feedback, please
contact Ms. Amani Kandil at Amani@
economena.com or at 01.985.618.
BOLD | March 2015 49
BOLD+ECONOMENA
SURVEY 2015
2015
GROWTH OVERVIEW
CONSENSUS REAL
GDP GROWTH AT 2%
The consensus growth forecast
among the 15 surveyed economists
was 2% in 2015. Forecasts ranged from
-1.5% to 4.3%, with most economists
pinning their forecasts on domestic political and security developments. The
IMF estimates that Lebanon’s economy grew by 1.8% in 2014, a slight pickup
over 2013.
Lebanon’s economy continues to
face major political and security ob-
stacles. Parliament has failed to elect a
President after several dozen sessions,
leaving the country’s top post vacant for
over nine months so far. Spillovers from
the ongoing conflict in neighboring Syria
have diminished, but still pose serious
constraints for tourism, trade, and security.
“A number of indicators point to a
decline in private consumption in 2015.
From the supply side, the tourism,
wholesale and retail trade sectors were
security environment,” said Dr. Hala
Nassif.
DISTRIBUTION OF REAL GDP GROWTH
FORECASTS FOR 2015
distribution
of respondents
35%
30
25
20
15
10
5
0
<0
<0-1% 1%-2% 2%-3% 3-4% >4%
growth
POSITIVE IMPACT FROM LOWER OIL PRICES IN 2015
Brent crude prices averaged $98.97 in
2014, down 8.8% from 2013, according to
EIA. As a result, domestic gasoline prices
dropped by 1,422 LBP, to average 32,415
LBP during 2014, 4.2% below their average the year before. EIA expects oil prices to continue to remain low in 2015, and
to average $58, or 41.4% below 2014. Lebanese economists predominantly expect
the economy to gain in 2015 from cheaper oil prices, with 12 out of 15 surveyed
economists selecting oil as a positive
factor for growth during the year, while
three economists said the costs and ben“Government expenditure on electricity and energy consumption will be less
costly, which will reduce the burden on
the government,” stated one Dr. Annie
Tortian of Haigazian University who
expects real GDP growth of only 0.5%0.75% in 2015. Reduced foreign exchange
outflows are also among the benefits of
cheaper oil, according to Joe Faddoul.
The likely positive impact on the economy from higher disposable incomes is
contingent upon the government not fixing gasoline prices in the domestic market, according to Walid Abousleiman of
Aksys Capital.
Besides the benefits, “decreasing oil
prices would negatively impact GCC
countries and would lead to a drop in
capital inflows to Lebanon and to additional challenges for the Lebanese economy,” stated Joelle Samaha citing a study
by the IMF published in 2012.
50 BOLD | March 2015
port bill, and lower costs for private
sector. On the other hand, Dr. Harake
expects lower remittances, a driver of
consumption, and said that “income
sourced from GCC nationals (tourists
and investors) will not be a factor since
it has been insignificant during the
past few years.”
“
Joelle
Samaha
DECREASING OIL
PRICES WOULD
NEGATIVELY IMPACT
GCC COUNTRIES AND
WOULD LEAD TO A
DROP IN CAPITAL
INFLOWS TO LEBANON
AND TO ADDITIONAL
CHALLENGES FOR THE
LEBANESE ECONOMY
Cheaper oil will also likely have a negative impact on non-resident deposits,
while contributing to an increase in interest rates and a decrease in real estate
prices, according to Jihad El Hokayem.
Dr. Wissam Harake sees the forces
of oil canceling each other out during
the year. Among the benefits, he cited
an improving fiscal balance, lower im-
ECONOMIC IMPACT ON LEBANON OF
CHEAPER OIL IN 2015
Neutral
3%
Positive
12%
2015
Breakdown by sector
Real estate is murky business in 2015
Transactions held up well in 2014, but economists are divided over the outlook for 2015. Some describe strong local demand for
small, affordable residence, while others point to the absence of Gulf investors and to strong local, regional, and international
headwinds.
“After a period of denial, brokers are starting to admit that business is slow and that prices have in some cases come down by almost 30%, often in the form of “discounts”. There are almost no clients for anything priced above $5,000 per sqm,” said Jihad El
Hokayem, a Chief Financial Markets Strategist.
“That is unlikely to change in the absence of Gulf investors since the local market is quite shallow and is not enough to satisfy what
many realtors are calling an oversupplied market,” said El Hokayem.
El Hokayem also believes that the drop in oil prices will likely reduce inflows to Lebanon and ultimately hurt the real estate market. Oil exporting countries will have less liquidity to transfer to Lebanon or to finance new projects at home which means slower
recruitment of Lebanese labor. Lebanese in Europe are also suffering from a decrease in their purchasing power due to the weaker
Euro, which doesn’t bode well for homebuying in Lebanon, according to El Hokayem.
“We practically have a recession in Lebanon, so there is weak domestic demand, and if the summer passes without an improvement
in sales activity, several smaller developers will begin to default. Effectively, there is a negative correlation between Beirut and
Dubai real estate, and now it appears to be Dubai’s time to boom,” said El Hokayem.
Tourist arrivals
Hotel occupancy
Tourist numbers barely changed in 2014, but growth in the
second half of the year helped drive a late resurgence. Most
economists see tourist arrivals rising in 2015, while three
economists forecast the same number of arrivals, with almost
all referencing the security situation as the key variable.
Hotel occupancy averaged 52% in 2014, virtually unchanged
from 2013, and well below the heydays of 2010. Most
economists expect hotel occupancy rates to pick up in 2015 if
the security and political situations hold.
Tourist arrivals (millions)
Outlook 2015
Beirut hotel occupancy rate (%, 4 and 5-stars)
70
65
Decline
0
2.17
Same
3
1.66
2011
Decline
60
58.1
55
1
54.5
50
1.37
2010
Outlook 2015
68.3
2012
1.27 1.35
2013
2014
51.6
1
52
45
Increase
9
Same
Increase
10
40
2010
2011
2012
2013
2014
New car sales
Real estate transactions:
Growth in new car sales accelerated in 2014 despite the slow
economy, driven largely by sales of affordable fuel efficient
vehicles. With new loan regulations requiring a 25% down
payment, some economists say sales of new cars may come to
a standstill or even fall in 2015, although a majority still expect
the new car market to remain resilient.
The value of registered real estate transactions inched up 2.8%
to $8.95bn in 2014 even as foreigners played a diminishing role
in the market during the year. Economists were divided over
the prospects for the real estate market, with five anticipating
a stable to declining market in 2015.
New car sales (thousands)
10
40.1
40
37.7
38
36
Outlook 2015
36.1
34
9
Decline
38.4
Real estate transactions($bn)
1
34.5
Same
3
Outlook 2015
9.5
9.2
9
9
Decline
9.0
8.8
3
8.7
9
8
32
30
2010
2011
2012
52 BOLD | March 2015
2013
2014
Increase
11
Increase
9
8
2010
2011
2012
2013
2014
Same
2
Breakdown by sector
2015
Lower energy bill won’t hold back imports in 2015
Fuel prices have dipped by over 40% and the Euro has slipped
by nearly 20% against the dollar in recent months, but Lebanon’s import bill is unlikely to change much in 2015, according
to a survey of 15 leading Lebanese economists.
“We live in a consumption-based economy with 1.5 million
Syrian refugees, and the population is rising, so logically speaking, we will need to import more. At the same time, the basket
of goods has changed, with households shifting their savings
on fuel to other products, which are pre-dominantly imported
since we mostly consume foreign goods given the small size of
local production,” explained Dr. Georges Nehme, an economist
and the Dean of the Faculty of Business Administration at Antonine University.
Balance of payments ($bn)
4
3
2010
2011
2012
2013
2014
Outlook 2015
3.3
Decline
2
Same
2
1
1
0
-1
-2
-2.0
-1.5
-1.1
-1.3
Note: 2014 through November
Increase
11
Inflation
Unemployment
Inflation averaged 3.5% in 2014 according to the IMF, slightly
ahead of the rate in 2013. A majority of economists see inflation
picking up again in 2015, while six economists forecast slower
or similar inflation during the year on lower oil prices and
cheaper imports from the Euro area.
None of the surveyed economists expects unemployment to
decrease in 2015, reflecting the impact on the labor market
from Syrian refugees and the slow rate of job creation.
Inflation (%, average)
Unemployment (%, estimates)
Outlook 2015
8
7
7.2
6
5
5.1
4
10
Decline
5.9
2
3.2
3
3.5
11.9
12
Same
4
8
Outlook 2015
10.1
8.9
Decline
0
6
Same
1
4
2
2
1
Increase
9
0
2010
2011
2012
2013
0
2012
2014
2013
2014
Increase
14
Imports
Exports
Imports fell by a slight 3.5% to $20.49bn in 2014. Despite
expectations of a lower energy import bill, estimated at $4.8n
in 2014, most economists still see imports rising considerably in
2015, while two surveyed economists see imports maintain the
same level.
Uncertainty over the security situation along the Lebanese
Syrian border and in key export markets like Iraq and Egypt
will likely affect exports in 2015. Economists are forecasting
the same level of exports in 2015 as in 2014, or a very slight
increase.
Imports ($bn)
Exports ($bn)
Outlook 2015
22
21.3
21
21.2
20.2
20
20.5
Decline
0
19
18
Same
2
5
4
4
4.3
4.3
Decline
4
Same
5
4
3
17
Increase
12
16
2010
1
3.9
4
18.0
Outlook 2015
4.5
2011
2012
2013
2014
3.3
3
Increase
3
2010
2011
2012
2013
2014
8
BOLD | March 2015 53
Breakdown by sector
2015
Cheaper oil won’t save the fiscal deficit either…
Expectations of a decrease in the deficit at Electricite du Liban have failed to convert into a positive outlook for public finances in
Lebanon. The government may save up to $500m from cheaper fuel in 2015, according to the Ministry of Finance, but the consensus among economists still points to a larger deficit, or at best, a similar shortfall to 2014.
“We cannot but expect an increase in the deficit given current macroeconomic conditions. We’ve been hearing of severe cost cuts
at various public sector departments, which implies very tight public finances in my view,” said Dr. Nehme who expects the deficit
to rise slightly in 2015. “At the same time, the debt service burden has risen considerably in recent years due to higher debt levels,
and the lack of transparency in government finances gives credence to pockets of spending of which we may not be aware yet.”
Dr. Nehme also attributed his forecast of a higher deficit in 2015 to the vacancy in Lebanon’s top post. “In the absence of a President, the signature of every minister is required to pass decisions in the Cabinet. This means ministers have an incentive not to
upset each other, and in this way, more ministers are able to get their respective projects approved.”
Public debt
Private credit
Gross public debt grew by 4.9% in 2014, equivalent to $3.14bn.
Economists expect debt levels to increase rapidly in 2015.
Credit to the private sector grew by 7.4% in 2014 to $50.9bn,
its slowest pace in 3 years. Still, most economists expect
production to remain strong in 2015 with four out of 15
economists selecting private credit as their top growth metric
for the year.
Gross public debt ($bn)
Private credit ($bn)
Outlook 2015
70
66.6
65
63.5
55
Decline
1
60
Outlook 2015
Same
0
50.9
50
43.5
45
57.7
55
52.6
35
Increase
14
50
2011
2010
2012
2013
34.9
Same
1
Increase
14
30
2014
1
39.4
40
53.7
47.4
Decline
2010
2011
2012
2013
2014
Private deposits
Fiscal deficit
Private sector deposits rose 6% to $144.4bn in 2014, its slowest
pace in 9 years, as deposits of non-residents slowed. New
regulations, including FATCA contributed to the smaller flow
of deposits from abroad. “Non residents' deposits are on a
backward trend which will ultimately negatively impact the
sector. Hence the active search of new markets by leading
Lebanese banks.” – Dr. Hala Nassif.
The deficit at Electricity du Liban is set to shrink in 2015 on
lower oil prices, requiring less transfers from the Ministry of
Finance. Still, a majority of economists see the deficit rising
during the year on the back of higher interest payments and
weaker revenue growth.
Private deposits ($bn)
144.4
150
Decline
1
125.0
130
110 107.2
Same
2011
2012
54 BOLD | March 2015
2013
2012
2013
2014
2
2014
Increase
10
-5
Outlook 2015
1
-2
-4
100
2010
2011
Decline
-3
115.7
120
0 2010
Outlook 2015
-1
136.2
140
Fiscal deficit ($bn)
-2.9
-2.3
-2.4
-3.9
Increase
10
-4.2
Note: 2014 through October
Same
3