World Bank projects war-hit Lebanon’s economy to contract by ۶.۴ percent

Conflict with Israel derails Lebanon’s economic recovery as inflation and consumer prices rise, the global lender says.

Lebanon’s economy is projected to shrink by ۶.۴ percent this year as conflict turns a brief post-crisis recovery into a sharp downturn, says the World Bank.

The global lender’s Summer ۲۰۲۶ Lebanon Economic Monitor, titled A Conflict-Torn Economy, noted that the country entered the year on stronger footing after expanding by ۴.۲ percent in ۲۰۲۵, its highest real gross domestic product (GDP) growth since the ۲۰۱۹ financial collapse.

“The rebound was sharply interrupted by the March ۲۰۲۶ escalation in conflict, which further damaged housing and infrastructure, displaced communities, disrupted supply chains and weighed heavily on tourism and domestic demand,” the report said on Friday.

“Real GDP is projected to contract by ۶.۴ percent in ۲۰۲۶, reflecting the collapse in tourism, weaker consumption, disrupted supply chains, heightened insecurity, and prolonged displacement,” it added.

Consumer prices are also under renewed pressure, with inflation expected to accelerate to ۱۷.۵ percent. The World Bank attributed the rise to supply disruptions, elevated shipping costs, and volatile fuel prices.

“Advancing reforms, particularly on banking sector restructuring and fiscal management, will be critical to restoring confidence, protecting stability, and mobilising the financing needed for reconstruction and recovery,” said Dahlia Khalifa, World Bank division director for the Middle East department at the launch of the report.

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 crisis.

The International Monetary Fund (IMF) endorsed the legislative progress, calling the measure “a very good step that reflects Lebanon’s commitment to aligning its legislation with the best international practices”.

The IMF, which has maintained ongoing discussions with Lebanese officials to secure a formal bailout program, confirmed it plans to resume technical meetings in Beirut next month to evaluate further structural policy measures.

“Economic stability in Lebanon is possible amid the current regional chaos, but the likelihood of achieving it in the short term is also conditioned by politics and security, not by economic affairs alone,” said former Economy and Trade Minister Alain Hakim in an interview with Lebanese news outlet Akhbar Al Yawm.

“There is no reason for extreme pessimism because we have the elements available in the country on all fronts, including the existence of constitutional institutions, in addition to indicators of economic activity improvement in the pre-war period,” Hakim said.

“Therefore, when this war ends, this activity will return, especially from the private sector and individual initiatives.”