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finance & economyOctober 18, 2020

GDP will shrink by more than 20 percent

The decline in private consumption is main reason


The Gross Domestic Product (GDP) is forecasted to drop by more than 20 percent on average according to various estimations by international entities, with estimates ranging from 17 to 26 percent.



According to the World Bank’s ‘Beirut Rapid Damage and Needs Assessment’ report, the explosion at the Port of Beirut is estimated to negatively impact GDP by an additional 0.4 percent in 2020 and another 0.6 percent in 2021, due to losses in stock and physical capital.

Potential import constraints could lower the growth rate by an additional 0.4 percent in 2020 and 1.3 percent in 2021. The World Bank said: “These impacts are beyond the double-digit contractions in real GDP growth stemming from the pre-existing economic and financial crisis and Covid-19 effects. Its impact is specifically dependent on the extent of import constraints caused by the explosion, which remain uncertain.” According to the report, the explosion is expected to cause a further loss in output due to discontinued economic activity resulting from physical damage to the port and to retail and commercial centers.

The Economist Intelligence Unit (EIU) said: “We expect the economy to contract as private consumption plunges.”

Bank Audi said in its ‘Lebanon Economic Report’ for the second quarter of 2020: “The economy has fallen in a recessionary trap in the first half of 2020, with the real economy caught in a depression characterized by a significant contraction in real output.” According to the report, the economic contraction was driven by a decline in private spending, while public spending was at a standstill. “Private consumption has been adversely impacted by overall economic concerns and increased monetary fears, in addition to the adverse impact of the coronavirus pandemic on consumption behavior at large,” Bank Audi said. Private investment was severely affected as most investors were reluctant to embark on any new ventures amid increased economic uncertainties and growing concerns over the country’s political and economic outlook, it added.

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