Lebanon's economy is projected to contract by 6.4 per cent in 2026 due to the Israel-Hezbollah war, the World Bank said on Friday.
Earlier this month, Lebanon's Economy Minister Amr Bisat told The National that the country's economy was expected to contract by 7 per cent this year due to the resumption of the conflict in March.
The projections deal a blow to a brief window of optimism after Lebanon showed estimated real GDP growth of 4.2 per cent in 2025.
“The rebound, supported by stronger consumption, investment, tourism and improved high-frequency indicators, was sharply interrupted by the March 2026 escalation in conflict, which further damaged housing and infrastructure, displaced communities, disrupted supply chains and weighed heavily on tourism and domestic demand,” the World Bank said in the summer edition of its Lebanon Economic Monitor.
Lebanon is heavily reliant on imports and thus more exposed to shocks such as the disruption to shipping and energy supplies caused by the Iran war.
“Lebanon’s fragile recovery has been sharply set back by the renewed conflict, adding to an already severe social and economic crisis,” said Dahlia Khalifa, World Bank Middle East director.
“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.”
Lebanon is still dealing with the effects of the economic crisis that emerged in 2019, which the World Bank has described as one of the worst in modern history.
The Lebanese currency lost more than 95 per cent of its value against the US dollar on the parallel market. Informal capital controls by commercial banks meant many Lebanese people were locked out of their life savings.
“Public debt remains unsustainable, and debt restructuring negotiations have yet to begin,” the World Bank said. “Inflation is also expected to rise to 17.5 per cent in 2026, driven by supply disruptions, higher shipping costs, and rising oil prices, further reducing people’s purchasing power.”
While the local currency has stabilised at around 90,000 Lebanese pounds to the dollar, the World Bank warned it could come under pressure if foreign inflows decline or conflict-related shocks continue.
Meanwhile, Israel continues to occupy vast swathes of southern Lebanon and has shown no sign of an imminent withdrawal. Hezbollah has shown no inclination to hand over its weapons, so the unstable situation is expected to continue.
“These new losses compound the damage from the 2024 conflict, before recovery from that episode could take hold,” the World Bank said, referring to the previous round of war between Hezbollah and Israel in 2024.
