Lebanon Retail Analysis - Fourth Quarter 2021 (Q4-2021)
Purchasing Power: Further Deterioration. Markets Activity: Further Slowdown.
Markets did witness an accelerating fall in the value of the Lebanese pound during the last quarter of 2021, as it dropped to almost LBP 30,000 to the Dollar during the last month of the year (as compared to LBP 23,000 in the previous month), resulting into a further deterioration of the purchasing power of Lebanese households and individuals, whilst neither the long-awaited “Social Support Card Program” was implemented, nor the financial aid complementing salaries, during the period under review. Meanwhile, this sharp decline of the Lebanese currency had a direct undermining effect on the level of activity in the retail trade markets, and spending was concentrated mainly on basic goods and necessities, mainly food products, medicines and fuel, and on keeping at a minimum possible expenses for the “Back to School” in terms of tuition fees, books and stationery. As for the Lebanese immigrants’ visits to their home country during the end-of-year season, they did not unfortunately have the positive impact that was expected in terms of volume of spending and consumption, since a very large part of “real” spending occurred benefitting from the strength of foreign currency against the local currency ! It should also be noted that traders were facing additional major pressure with the need to adjust their prices in LBP very frequently, at the rhythm of the dollar variations, in light of the authorities’ insistence – especially the Ministry of Economy, on the obligation to post prices in LBP and not allowing to do so in USD and converting at the market rate on the time of sale. Concurrently with all these subjective factors, the CPI was registering new record levels in Lebanon (amongst the highest in the world), and there was not a single indicator for any financial or monetary recovery in the country in the short term – especially in the absence of meetings of the government, and the standstill in the talks between Lebanon and the IMF, in addition to the embargo imposed by most Gulf countries resulting into a quasi-cessation of exports to these countries and a stop of flow of much needed fresh foreign currency into Lebanon . All the above combined to result into more contraction of the GDP for this year – a GDP that was not projected to reach at the end of 2021 more than USD 22 billion after having reached a high of USD 55 billion before the crisis. This was obviously accompanied by a sharp reduction in the size of government income / revenues, and a debt level that may well be the highest in the world, with an increasing deficit in the Balance of Payments, despite a shrinking deficit in the Trade Balance. On the other hand, and until the end of 2021, no decision was yet made pertaining to the final distribution of all or part of the USD 1,135 million obtained by Lebanon in terms of SDRs at the IMF. During this same period, the Central Bank also attempted to absorb as much volume as possible from an hyper-inflated Monetary Mass in LBP (that was expected to reach more than LBP 55,000 billion at the end of the fourth quarter as compared to LBP 35,000 billion at the end of the previous year), via monetary Circulars and Decisions – and especially with its focus on the Sayrafa platform for the exchange between LBP and USD, in an attempt to reduce the operations conducted through the black market to a minimum and have a better control of the forex market . While the USD reserves continued to shrink and no new channels to attract fresh foreign currency from abroad or from the local market were identified. All the above affected of course the willingness and capability of Lebanese households for consumption and spending on non-essential goods, while holders of liquidities at home only resorted to it in cases of utmost need or urgency. Meanwhile, the official CPI issued by CAS translated a very high rise between the 4t h quarter of ’20 and the 4t h quarter of ’22, and posted a + 224.39 % increase (in comparison to + 114.12 % in the previous quarter), while the increase reached + 50.08 % between the 3 rd and the 4t h quarter of ’21 (after the + 47.95 % of the previous quarter). These figures do reflect an accelerating rise in inflation, while the government simply did not proceed to implement any measures that would help curbing this collapse in the economy and slowing down the unprecedented hike in prices.
The details of the CPI per sector revealed, between the fourth quarter of 2020 and the fourth quarter of 2021, the following:
While the CPI per sector between the third and the fourth quarter of 2021 was as follows:
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In light of the above inflation figures, coupled with the uninterrupted increase of the dollar rate against the Lebanese Lira, unprecedented sectoral inflation levels are being witnessed, be it in the transport sector, or the food, bakeries and restaurants sector, or even in the health sector as well as the clothing and home appliances sectors – in other words in all vital goods sectors. Hence it appears that, and after scrutiny of the variations in the consolidated “nominal” retail turnover figures in the Retail Trade Sectors between the 4th quarter of 2020 and the 4 t h quarter of 2021, it appears that the fourth quarter figures of 2021 posted a positive figure of 32.89 % after excluding the fuel sector (Important remark: this increase is in the nominal turnover figures before weighting with the CPI rates). But, after applying the proper weighting with the CPI for the period under review (between Q 4 of 2020 and Q4 of 2021), it appears that “real” turnovers continued to witness a dramatic drop in all sectors of the market, a drop that was very close to 100% in most activities (resulting from a +224.39 % increase in CPI this quarter, after the 144.12 % of the previous quarter), bearing in mind also that the fuels sector did register a slight increase of only + 1.69% in volumes for the same period, and drawing attention to the fact that two sectors had a relatively moderate drop in their turnover figures (as opposed to all other sectors where the decrease was very sharp), namely the construction materials sector (- 2.51 %), and the cellular phones Sector (- 36.17 %). On the other hand, the CPI between Q3 ’21 and Q4 ’21 also indicated an acceleration in the increase of prices (+ 50.08 % - i.e. close to the + 47.95 % registered in the previous quarter), and it was noted that the performance of all sectors – except in the construction materials sector, was negative, but the decline varied in amplitude between one sector and the other. As a result, the consolidated “real” figures in Q4 ’21 (i.e. weighed with the respective CPI figures for every sector of the retail trade activities) for all retail trading sectors, posted, as compared to the real figures of Q3 ’21 (that were already in sharp decline), a further drop, despite the fact that the last quarter of every year is considered by all traders to be the most important period during which the best turnover figures of the year are traditionally registered. The figure posted stands at – 41.38 % (as compared to the – 46.82 reported in the previous quarter), after excluding the figures of the fuel sector (where a – 6.32 % decrease in quantities was registered, reflecting a weaker market demand despite usually positive seasonal factors, as a result of the gradual levy of subsidy on the fuel sector with prices reaching levels unseen before in the Lebanese market). The “real” figures posted in the main sectors were as follows: