(Bloomberg) — At a small cafe in the south Lebanese village of Ain Ebel, customers once indulged in drinks and lingered for hours puffing on water pipes filled with aromatic tobacco. Now, most go for a quick shot of espresso in a paper cup.
“It’s the only thing that’s still 2,000 pounds,” said Ibrahim Sader, the 32-year-old owner. “Everything else is now more expensive.”
Lebanon’s worst economic crisis in decades has already cost thousands of jobs, with unrest stirring again on Saturday as protesters lashed out at the government’s response. The depreciation in the pound is driving up prices, hitting disposable incomes and forcing many Lebanese to rein in the free-spending lifestyles they’d become accustomed to. Many now talk in terms of their lives before the currency crisis — foreign holidays and shiny cars — and their modest new reality.
By tethering the exchange rate to the dollar for over two decades, Lebanon effectively subsidized imports from wheat and fuel to luxury goods and vehicles, allowing Lebanese to enjoy lifestyles that would otherwise have been beyond their means. That stability, and the high interest rates paid to depositors, also attracted diaspora remittances that became a crucial source of government funding.
But the prosperity came at a cost. The peg, overvalued by an estimated 50% in recent years, warped the economy, hollowing out manufacturing and agriculture by making Lebanese goods less competitive abroad. Addicted to imports, Lebanon came to rely on the service industry for 76% of jobs.
The reckoning came in October, when the central bank stopped providing dollars to importers of anything but wheat, drugs and fuel. Banks cut back dollar conversions and companies were forced to turn to the black market, causing a sharp depreciation in the pound. The local currency has reached lows around 4,500 to the dollar, compared with an official peg of 1,500 now effectively in place for only essential goods, while overseas money transfers are set at the market exchange rate.
The multiple rates have created confusion and made it harder for companies to plan, let alone grow.
Nothing Local
“We don’t have anything here that’s local and when we do, it’d be more expensive than importing large quantities from abroad,” said Naaman Hashem, managing partner at Aruba, a producer and distributor of food items such as ready-mix cakes.
The peg held out through a succession of crises, from almost a decade of war in neighboring Syria to the 2014 crash in oil prices that choked off inflows from the Gulf. But as risks grew and money stopped coming in from abroad, the system became impossible to sustain.
Three months after defaulting on $30 billion of Eurobonds, the government is still hashing out a deal with the International Monetary Fund to secure a bailout. A rescue plan approved by the government in April faces resistance from banks, and will likely come too late for many of Lebanon’s most vulnerable.
Unemployment was 20% two years ago and that figure will certainly rise with hundreds of companies shutting down. Inflation is expected to soar nearly 10-fold from 2019 to over 25% this year, according to government figures, and 50% of the population could plunge into poverty.
‘Food Crisis’
Food prices have already shot up much more since October, when nationwide protests erupted against worsening living conditions in a country where almost a fifth of the population earned less than the minimum wage. A government agency found that some items have gone up by 207%, with the prime minister warning the country is at risk of a “major food crisis.”
Frugality is giving way to desperation, especially as businesses that survived the economic meltdown contend with restrictions imposed to contain the coronavirus pandemic.
A member of a Facebook group dedicated to children’s nutrition posted a video on alternatives to powdered baby milk after prices skyrocketed, suggesting boiling fresh cow’s milk from nearby farms. Another asked for diaper recommendations because her usual brand was no longer affordable.
With blankets laid on the ground beside their belongings, hundreds of Ethiopian domestic workers have been left stranded outside their embassy in Beirut because their employers are no longer able to pay their foreign currency salaries. An estimated 250,000 migrants were employed in Lebanon before the crisis. It’s not clear how many have since left.
Starved of Dollars
Even for companies like Aruba, whose sales increased by 1,000% during the lockdown as Lebanese resorted to cooking and baking at home, the currency crisis is creating problems. The company struggles to collect money from supermarkets it supplies and to secure enough dollars for merchants that in turn supply its raw materials.
Exchange rate fluctuations have prompted many stores and small grocery shops to stop buying certain items altogether. A mere 207 vehicles came through Port of Beirut in April, compared with 3,500 in the same month last year.
Just as the currency crash guts household finances, the government is expecting revenue to drop by almost 30% this year. It’s on track to run a deficit the IMF estimates will reach over 15% of gross domestic product.
The central bank’s foreign assets are down 10% so far this year, reaching $33.5 billion as of end-May. The stockpile declined by $907 million between April and May alone, which Blominvest Bank attributes largely to the cost of helping finance the import of essential goods.
The devaluation has so far brought few benefits. Exports are up less than 7% in the first quarter though imports collapsed by over 40%. After limping along for years, the economy is projected to shrink more than 12% in 2020, the biggest contraction since the civil war ended in 1990.
Perhaps the greatest uncertainty of all is over what a post-crisis Lebanon will look like.
“We have for years been living beyond our means,” said Sami Atallah, head of the Beirut-based Lebanese Center for Policy Studies. “Everyone talks about wanting a productive economy but no one provides the right path to do that.”
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
