World Bank: Lebanon’s economy to shrink 6.4% in 2026 after conflict halts recovery
The World Bank’s latest Lebanon Economic Monitor, titled “A Conflict-Torn Economy,” projects that Lebanon’s economy will contract by 6.4% in 2026, reversing a brief recovery that had taken hold last year. The report, released in summer 2026, says the country entered the year on stronger footing after real GDP expanded by 4.2% in 2025 — its highest growth since the 2019 financial collapse.
According to the report, the 2025 rebound was driven by stronger private consumption, investment, and tourism, alongside improvements in high-frequency economic indicators. But that momentum was sharply interrupted in March 2026, when Hezbollah renewed its conflict with Israel. The escalation further damaged housing and infrastructure, displaced communities, disrupted supply chains, and weighed heavily on tourism and domestic demand.
“Real GDP is projected to contract by 6.4 percent in 2026, reflecting the collapse in tourism, weaker consumption, disrupted supply chains, heightened insecurity, and prolonged displacement,” the report said.
The World Bank estimates that the conflict will reduce GDP growth by 10.4 percentage points relative to a scenario without it. The latest downturn comes after Lebanon’s economy already contracted by an estimated 5.2% in 2024.
Displacement and infrastructure damage
The report cites UN figures indicating that around 360,000 people remain displaced, including at least 22,000 living in collective shelters. More than 700,000 people are still affected by damage to water infrastructure in parts of southern Lebanon. At the height of the conflict, the UN reported 1.2 million internally displaced people.
Inflation and fiscal pressures
Consumer prices are also under renewed pressure. The World Bank expects inflation to accelerate to 17.5% by the end of 2026, attributing the rise to supply disruptions, elevated shipping costs, and volatile fuel prices.
The report notes some positive fiscal developments in 2025. Beirut recorded an overall surplus of 3.9% of GDP, supported by improved tax compliance and stronger customs and VAT collection. In the second half of the year, construction permits increased by 12.8% and cement deliveries by 14% compared with the first half, while passenger arrivals rose 24.5%.
However, Lebanon imported more than it exported in 2025, causing the current account deficit to grow. Energy imports account for 23% of total imports. The Lebanese pound has remained broadly stable, supported by foreign exchange reserves and tighter local-currency liquidity, but the report warns that public debt is unsustainable at its current level and that the banking sector remains deeply weakened despite progress on parts of the restructuring agenda.
Calls for reform
At the launch of the report, Dahlia Khalifa, World Bank Group division director for the Middle East department, said: “Lebanon’s fragile recovery has been sharply set back by the renewed conflict, adding to an already severe social and economic crisis. Advancing reforms — particularly on banking sector restructuring and fiscal management — will be critical to restoring confidence, protecting stability, and mobilizing the financing needed for reconstruction and recovery.”
Parliament recently passed key amendments to the bank resolution law, designed to restructure failing financial institutions and map out a framework for the broader financial sector. The International Monetary Fund endorsed the legislative progress, calling it “a very good step that reflects Lebanon’s commitment to aligning its legislation with the best international practices.” The IMF plans to resume technical meetings in Beirut next month.
Mixed outlook
Former Economy and Trade Minister Alain Hakim struck a cautiously hopeful tone. “Economic stability in Lebanon is possible amid the current regional chaos,” he said, adding, “There is no reason for extreme pessimism.”
The World Bank report, however, underscores the severe toll of renewed conflict on a country already grappling with years of crisis. It concludes that sustained reform implementation will be essential to restoring confidence, protecting stability, and securing the financing needed for reconstruction and recovery.