World Bank projects war-hit Lebanon’s economy to contract by 6.4 percent

The World Bank has projected that Lebanon’s economy will contract by 6.4 percent this year due to the impact of ongoing conflict with Israel, according to its latest economic monitor. The report, released on Friday, highlights how the resurgence of hostilities in March 2026 derailed a brief economic recovery that had begun following years of instability. Lebanon’s GDP grew by 4.2 percent in 2025, marking its strongest expansion since the 2019 financial crisis. However, the new conflict severely disrupted economic activity, leading to a sharp contraction in output. The report, titled A Conflict-Torn Economy, outlines the severe consequences of the renewed violence. It notes that the conflict caused widespread damage to housing and infrastructure, forced large-scale displacement of residents, and disrupted essential supply chains. Tourism, a vital sector for Lebanon’s economy, suffered significantly, while domestic consumption declined due to rising uncertainty and insecurity. These factors combined to push real GDP growth down to a projected -6.4 percent for 2026. Inflation is also expected to climb, reaching 17.5 percent. This increase is driven by persistent supply chain disruptions, higher shipping costs, and fluctuating fuel prices. The World Bank warned that these pressures could further strain household budgets and reduce purchasing power, exacerbating existing economic challenges. The report emphasized that the situation is compounded by the long-term effects of displacement, which continue to affect both individuals and the broader economy. Dahlia Khalifa, the World Bank’s division director for the Middle East, stressed the importance of advancing reforms, particularly in the banking sector and fiscal management. She argued that such measures would be crucial for rebuilding public confidence, maintaining economic stability, and securing the necessary funding for reconstruction efforts. Recent legislative changes in Lebanon, including amendments to the bank resolution law, were cited as positive steps toward addressing the financial sector crisis. These reforms have received endorsement from the International Monetary Fund (IMF), which praised the legislative progress as a “very good step” that demonstrates Lebanon’s alignment with international best practices. The IMF continues to engage with Lebanese authorities in hopes of finalizing a formal bailout program. It announced plans to hold technical meetings in Beirut next month to assess additional structural reforms and policy adjustments. Former Economy and Trade Minister Alain Hakim expressed cautious optimism, noting that economic stability remains achievable despite the ongoing regional turmoil. He pointed out that political and security conditions play a decisive role in determining the pace of recovery. Hakim highlighted the presence of constitutional institutions and signs of economic activity improving prior to the outbreak of war. According to him, once the conflict subsides, private-sector activities and individual initiatives are likely to resume, contributing to economic revival. As the situation unfolds, the focus remains on balancing immediate humanitarian needs with long-term economic recovery. The World Bank and other international bodies continue to monitor developments closely, urging continued reform and cooperation to stabilize Lebanon’s fragile economic landscape.