Business conditions in Lebanon’s private sector hit a 10-year high in June despite the country's enduring economic crisis, soaring inflation and a political impasse that has held back billions of dollars from the International Monetary Fund and international donors.

The country's Blom purchasing managers’ index, a measure of the strength of its private sector, rose to 50.2 in June, from 49.4 in May.

This is the first improvement in the health of the private sector economy since August 2022, with growth hitting its highest level since June 2013, as new orders, employment and business activity posted renewed expansion.

A reading over 50 indicates an expansion in business conditions, while one below represents a contraction.

The reading for June was largely a reflection of business activity, employment and new orders increasing, while input cost inflation slowed to a 21-month low.

“The improvement was a long time in coming, but perhaps it was largely expected. The economy registered positive growth in 2022 and its momentum is carried over to 2023, especially with the onset of the tourist summer season,” said Ali Bolbol, the chief economist and head of research at Blom Bank.

“It is plain to see that the economy is adjusting upwards from its deep lows of the crisis years; but the worry is that these positive, tentative steps are viewed as ‘back to normal’, and consequently obviate the need for vital structural reforms that would underpin genuine, solid, and steady growth.”

New orders rose at the second-fastest rate in the PMI survey's history during June and to the greatest extent since May 2013. The improvement in demand reflected greater sales to domestic and foreign customers, according to the survey.

June's reading was the third consecutive monthly increase in new business received from non-domestic markets, which subsequently signalled the longest uninterrupted sequence of export demand growth since the survey began in 2013.

As a result of greater intakes of new business, Lebanon's private sector businesses recorded an increase in backlogs of work, with output levels raised to match workloads.

Employment levels in June increased as businesses raised capacity to accommodate greater sales.

For the first time since October 2019, there was a shortening of supplier delivery times in June.

Cost pressures subsided during June as input price inflation slowed.

Despite the positive developments, business confidence fell to a four-month low, with companies reporting concerns over the outlook caused by domestic political and economic uncertainty, according to the survey.

Inflation in Lebanon hit an annual rate of 260 per cent in May as a political impasse over the election of a president persisted, thwarting the enactment of reforms necessary for the country to emerge from its worst economic crisis.

Hyperinflation continued for the 35th consecutive month as the country's currency continued to lose value on the parallel and official markets since it was devalued by 90 per cent at the start of February.

The country is in the grip of an economic crisis described by the World Bank as one of the worst in modern history and has yet to enforce critical structural and financial reforms required to unlock $3 billion of assistance from the IMF, as well as billions in aid from other international donors.

The country has a caretaker cabinet led by Prime Minister Najib Mikati, with limited powers. It also needs to elect a president after the six-year term of Michel Aoun ended at the end of October, but this requires the consensus of the country's political elite.

Last month, the IMF said although Lebanon's economy showed some signs of stabilisation in 2022 due to a rebound in tourism, strong inflows of remittances and an improvement in trade in the second half of the year, it "remains severely depressed".

"Still, high uncertainty, banking sector restrictions, and expensive and very limited electricity supply continue to hinder economic activity," the fund said.

The country's economic outlook "is highly uncertain and depends on the authorities’ policy actions", it said.

Lebanon's economy contracted by about 58 per cent between 2019 and 2021, with gross domestic product falling to $21.8 billion in 2021, from about $52 billion in 2019, according to the World Bank – the largest contraction on a list of 193 countries.

The World Bank estimates that real gross domestic product declined 2.6 per cent in 2022 and is projected to contract 0.5 per cent this year.

"Decisive implementation of a comprehensive economic recovery plan could steadily reduce imbalances and provide a policy anchor that will help restore confidence and facilitate return to growth. However, the continuation of the status quo presents the largest risk to the outlook," the IMF said.

The fund warned that further delay of reforms will keep confidence low and cash dollarisation of the economy will increase, causing the national currency to depreciate further, keeping inflation high.