Syria War Could Push Lebanon, Jordan Into Economic Slump

Pointing to the sharp slowdown in Lebanon's economic growth since the start of Syria's conflict in 2011, from 7 percent to barely 2 percent, Abdallah al-Dardari said there was a direct link to the ever-deepening economic collapse in Syria.

Jordan's economic growth had remained steadier, between 2 percent and 3 percent, but was still affected by the Syrian turmoil and was below the level needed to provide enough jobs for its fast-growing population, he said.

The Syrian conflict "has a very destabilizing effect," said Dardari, now chief economist for the regional United Nations body ESCWA. "It is in the interest of the whole region for Syria to regain peace and quiet, and start rebuilding."

Dardari said Syria's economy had already shrunk between 35 percent to 40 percent and would fall 60 percent from its level at the start of the uprising if the fighting continued.

Every one percentage point of economic slowdown in Syria produced a 0.2 percentage point slowdown in Lebanon, he said.

With Syria's economy still collapsing "we can speak about negative growth in Lebanon and Jordan if the situation in Syria continues as it is today for the next two years," he told Reuters in an interview at the U.N.'s central Beirut offices.

The former deputy prime minister for economic affairs was dismissed by President Bashar al-Assad in a cabinet reshuffle shortly after the uprising erupted. He has since been working at the United Nations on plans for Syria's post-conflict reconstruction.

SYRIA CRISIS HITS TOURISM, TRADE

Economists in Lebanon say domestic factors also played a part in the country's economic slowdown, including the political uncertainty when former Prime Minister Saad al-Hariri's government was toppled in early 2011.

But Dardari said the Syrian crisis was hitting tourism, trade, development assistance from Gulf Arab oil states, and even remittance levels from Lebanon's huge expatriate population, who worry about security in their homeland.

The flood of cheap Syrian labor into Lebanon could also drag down average salaries by 14 percent because of the increase in labor supply of hundreds of thousands of refugees and laborers arriving in a country of just 4 million.

Lebanon's Central Bank Gov. Riad Salameh, speaking at a conference in Beirut on Thursday, agreed that the Syrian conflict was weighing on Lebanon's performance but reiterated his forecast of 2 percent growth this year.

The impact on Jordan would be slightly less because its economy was less tied to Syria's, Dardari said. "However you can see in the last five to 10 years Syria and Jordan dramatically improved their trade relations and bilateral investments, and have tremendous plans for further integration."

"That has all stopped now," he said.

Dardari's prediction was gloomier than the International Monetary Fund, which said in March it expected Jordan's economic growth to accelerate above 3 percent, reflecting an increase in government capital spending, higher domestic consumption and a recovery in exports.

However Syria faced almost unimaginable challenges even if the fighting were to stop tomorrow, Dardari said. He put the economic cost at $70 billion to $80 billion, including $28 billion to rebuild 1.2 million houses and provide them with infrastructure.

The country would need 30 million metric tons of cement a year — more than three times pre-crisis quantities — to repair damaged homes and keep up with the need for new housing, he said. "Thirty million tonnes of cement requires more than 1 billion cubic meters of water. We don't have that much water."

Sustained fighting on the other hand could only bring greater calamity, including staggering levels of unemployment and absolute poverty, he said.

"Over the next few years, if the fighting continues, we will have to look at it as a disaster zone rather than a normal economy functioning according to economics as we know it."

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