June 13, 2011- Domestic instability, related to the five-month delay in the formation of the new government, has reduced investments and consumption in Lebanon, according to figures released by the Regional Economic Service of the French Ministry of Economy, Finance and Industry.

The report, published by Byblos’s Lebanon This Week, attributed the slowdown in economic activity to a deceleration in the key engines of growth.

Socio-political turmoil taking place across the Arab world is negatively impacting confidence in the regional economy, which is harmful to the domestic economy and specifically to the balance of payments, the report said. The balance of payments has posted a cumulative deficit so far in 2011, after five years of uninterrupted surpluses.

The deceleration in economic activity is accompanied by a rise in inflationary pressures, which Lebanon had managed to contain since 2007. Inflation reached 5.3 percent in 2010, with early estimates putting inflation at 6.5 percent this year.

The report said the economy was impacted by depreciation by 11 percent of the dollar against the Euro in the first quarter of 2011 as most of the country’s imports are from the Eurozone.

According to the report, the growth outlook of the economy for 2011 can improve with the formation of the new government, which would help restore stability and confidence, given that the three-month period from May to July is the major anchor of economic activity in the country and would be decisive for growth the rest of the year.

The Central Bank has the means to address the ongoing slowdown, as it can easily defend the stability of the currency and refinance the public debt, the report said.