World Bank projects Lebanon's GDP to contract by 6.4 per cent in 2026

The World Bank has projected that Lebanon's gross domestic product will contract by 6.4 per cent in 2026, citing the ongoing Israel-Hezbollah conflict as the primary cause. This projection comes amid continued Israeli military operations in southern Lebanon, which have intensified since March 2026. The bank’s latest report highlights how the recent escalation has severely disrupted the country's fragile economic recovery. The contraction follows a brief period of optimism in 2025, during which Lebanon recorded an estimated 4.2 per cent real GDP growth. However, this rebound was abruptly halted by the renewed hostilities between Israel and Hezbollah. According to the World Bank, the conflict led to widespread destruction of housing and infrastructure, displacement of communities, and significant disruptions to supply chains. Tourism and domestic demand, key pillars of the economy, were also heavily impacted. Economy Minister Amr Bisat had previously informed The National that the country’s economy was expected to contract by 7 per cent in 2026, aligning with the World Bank’s forecast. The ministry attributed this downturn largely to the resumption of the conflict in March. The report noted that Lebanon’s reliance on imports makes it especially vulnerable to external shocks, such as those caused by the Iran war, which disrupted shipping and energy supplies. Dahlia Khalifa, the World Bank’s Middle East director, emphasized that the renewed conflict has dealt a severe blow to Lebanon’s already dire economic situation. She called for urgent reforms, particularly in the banking sector and fiscal management, to restore public confidence and ensure the necessary funding for reconstruction efforts. These measures, she argued, would be essential in maintaining stability and supporting long-term recovery. The economic crisis in Lebanon dates back to 2019, which the World Bank described as one of the worst in modern history. During this period, the Lebanese currency lost over 95 per cent of its value against the US dollar on the parallel market. Commercial banks imposed informal capital controls, leaving many citizens unable to access their life savings. Public debt remains unsustainable, and debt restructuring negotiations have yet to commence. Inflation is expected to reach 17.5 per cent in 2026, driven by supply chain disruptions, increased shipping costs, and higher oil prices. These factors are likely to further erode purchasing power among Lebanese citizens. While the local currency has stabilized at approximately 90,000 Lebanese pounds to the dollar, the World Bank warns that it could face additional pressures if foreign capital flows decrease or conflict-related challenges persist. Israel maintains control over large areas of southern Lebanon and shows no signs of withdrawing soon. Hezbollah, meanwhile, has not indicated a willingness to relinquish its weapons, ensuring that the region remains in a state of heightened tension. The World Bank notes that these new losses exacerbate the damage inflicted during the 2024 conflict, before any meaningful recovery from that episode could take place.