Boston, MA -- (SBWIRE) -- 08/24/2012 -- Core Views Although we expect growth to accelerate slightly in 2012, we stress that the pace of economic expansion will remain somewhat anaemic. The ongoing crisis in Syria is likely to keep tourist arrivals in Lebanon low over the coming quarters, while instability on the border will only further disrupt supply chains and goods exports. Lebanon's exposure to the faster growing economies of the Gulf Cooperation Council should help counteract the effects of higher oil prices. We expect to see an influx in banking sector deposits, remittance inflows, and foreign investment from the Gulf in 2012 as long as global energy prices remain elevated. Although having so far avoided large-scale unrest, the security environment in Lebanon is expected to remain tenuous. Clashes on the border with Israel cannot be ruled out, and violence spilling over from Syria also remains a distinct possibility. Major Forecast Changes We have revised our medium-term debt projections for Lebanon, and expect the ratio of government debt-to-GDP to stabilise in the 125% area over the coming years. In light of higher oil prices at the start of 2012, we expect Lebanon's import bill to remain higher for longer than previously anticipated, and now forecast the current account deficit to come in at 25.1% of GDP this year, compared to 25.7% in 2011. Key Risks To Outlook Given Lebanon's reliance on foreign capital to finance domestic demand (as evidenced through its large current account shortfall), a marked deterioration in regional or global capital markets over the coming quarters could slow financial inflows, which would negatively impact growth. The collapse of the regime of Syrian President Bashar Assad raises significant questions surrounding the dynamics of Lebanon's domestic political environment going forward. At the moment, it remains unclear how Hizbullah will react to the loss of its key financial and military backer. Ongoing unrest in Syria poses a distinct risk to Lebanon's economic and political stability. A prolonged period of public unrest would not only increase refugee inflows, but would also result in a significant slowdown in much-needed tourist arrivals.

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