Lebanon economy to contract by 6.4 percent due to war, World Bank says

Lebanon’s economy is set to shrink by 6.4 percent this year, according to a new projection from the World Bank, which attributes the contraction to the ongoing war. The report highlights how the conflict has thrown the country’s economic recovery into disarray, undermining progress made in recent years. Real gross domestic product is forecast to decline sharply, with the bank citing several factors contributing to the downturn, including the collapse of tourism, reduced consumer spending, disrupted supply chains, increased insecurity, and continued population displacement. The World Bank’s analysis indicates that inflation is also expected to climb to 17.5 percent in 2026. This surge is driven by a combination of supply chain interruptions, elevated shipping expenses, and rising global oil prices. These pressures are eroding the purchasing power of Lebanese citizens, compounding the challenges faced by households already struggling under the weight of years of economic hardship. The report underscores the broader impact of these macroeconomic trends on everyday life, as families find themselves increasingly unable to afford basic necessities. Before the current conflict, Lebanon had shown signs of stabilization, with real GDP growing by 4.2 percent in 2025, its strongest performance since the start of the 2019 financial crisis. This modest rebound was fueled by cautious government policies and some degree of external support, though it remained fragile. The World Bank notes that this growth was not sufficient to offset the damage caused by the war, which has reversed much of the progress made over the past few years. The agency warns that without decisive action, the country risks slipping further into economic despair. Dahlia Khalifa, the World Bank’s Middle East director, emphasized the importance of implementing structural reforms to restore investor confidence and ensure long-term stability. She highlighted the need for urgent measures in key areas such as banking sector restructuring and improved fiscal management. These steps, she argued, are essential for securing the funding necessary to rebuild infrastructure and support economic revival. Her remarks reflect a broader consensus among international financial institutions that Lebanon must address deep-rooted systemic issues to avoid prolonged stagnation. The war, which began in October 2023, has intensified existing vulnerabilities within Lebanon’s economy. The country has been grappling with a severe debt crisis, currency devaluation, and a collapsing public services system for years. The conflict has exacerbated these problems, creating a perfect storm of instability. With many businesses forced to close and workers displaced, the labor market has suffered significantly, adding to the overall economic strain. The situation has also led to a sharp increase in humanitarian needs, with millions of people requiring urgent assistance. Looking ahead, the World Bank expects that the path to recovery will require sustained political cooperation and international aid. While the immediate outlook remains bleak, there is hope that targeted interventions could help stabilize the economy in the medium term. However, the report makes clear that without substantial reform and investment, Lebanon faces a prolonged period of economic decline. The coming months will be crucial in determining whether the country can begin to turn its fortunes around.