Lebanon’s private sector continued to lose momentum in May, with the BLOM Lebanon Purchasing Managers’ Index (PMI) slipping to 48.9 from 49.0 in April, marking a third consecutive month of contraction and signaling sustained deterioration in business conditions.

According to the report, the latest reading reflects a deepening sense of economic unease, as political uncertainty at both the domestic and regional levels continues to weigh heavily on output, new orders, and investor sentiment.

At home, tensions remain high as the Lebanese government begins the disarmament of Palestinian refugee camps—a move viewed by some as a preliminary step toward confronting the far more complex and politically sensitive issue of Hezbollah’s arsenal. Meanwhile, U.S. pressure is mounting on Beirut to accelerate the disarmament of all non-state armed groups.

Regionally, instability has also intensified. Israel has stepped up its military campaign in Gaza in an apparent bid to force concessions from Hamas amid faltering ceasefire talks in Qatar. No breakthrough has been reached, and a short-term resolution appears unlikely, further undermining investor confidence in the wider region.

Initial optimism surrounding the formation of Lebanon’s new government, led by President Michel Aoun and Prime Minister Tammam Salam, is also beginning to fade, the report noted. Although authorities have enacted some reforms, notably amending the banking secrecy law, core structural challenges remain unresolved. Chief among them is the politically fraught issue of distributing financial losses across the government, the Central Bank, commercial banks, and depositors.

The prolonged impasse continues to paralyze Lebanon’s recovery. Domestic demand remains weak, foreign orders are sluggish, and rising shipping costs are further straining output, the report said. Analysts say without decisive reforms and a broader political settlement, Lebanon’s economic, financial, and social crises will persist well into the second half of the year.