Lebanon’s economy is expected to contract by 6.4% in 2026 as the latest war between Israel and Hezbollah derails the country’s fragile economic recovery, the World Bank said Friday.
Lebanon has been grappling with an unprecedented financial crisis since 2019 and had yet to fully recover from the 2024 Israel-Hezbollah war when the Iran-backed group became involved in the broader Middle East conflict by launching attacks on Israel in March.
Israel responded with an extensive air campaign and ground offensive that Lebanese authorities say has killed more than 4,300 people.
Tourism and Consumption Hit by War
The World Bank said Lebanon’s real GDP is projected to contract by 6.4% this year, citing a sharp decline in tourism, weaker consumer spending, disrupted supply chains, heightened insecurity and prolonged displacement.
Inflation is also forecast to reach 17.5% in 2026, driven by supply disruptions, higher shipping costs and rising oil prices, further eroding household purchasing power.
The economic downturn marks a sharp reversal from 2025, when Lebanon recorded estimated real GDP growth of 4.2% — its strongest performance since the country’s financial crisis began in 2019.
World Bank Calls for Banking and Fiscal Reforms
Dahlia Khalifa, the World Bank’s Middle East director, said advancing economic reforms, particularly restructuring the banking sector and improving fiscal management, will be essential to restoring confidence and maintaining stability.
She also stressed the importance of reforms in mobilizing the financing needed to support Lebanon’s reconstruction and economic recovery.
The international community has repeatedly urged Lebanese authorities to accelerate financial reforms as a condition for securing much-needed international assistance.
Parliament Amends Bank Resolution Law
Last week, Lebanon’s parliament approved amendments to a bank resolution law designed to restructure troubled banks and address the country’s long-running banking crisis.
The International Monetary Fund welcomed the legislation, describing it as a positive step that reflects Lebanon’s efforts to bring its laws in line with international best practices.
Lebanon has also been negotiating with the IMF over a potential economic support program, with the fund expected to resume meetings with Lebanese officials in Beirut next month.
