World Bank Warns Lebanon's Economy Faces 6.4 Percent Contraction in 2026 Amid Renewed Conflict

Lebanon's economy is expected to shrink by 6.4 per cent in 2026 as a direct result of the Israel -Hezbollah war, according to a recent statement released by the World Bank on Friday. Earlier in the month, Lebanon's Economy Minister Amr Bisat informed The National that the national economy anticipated a 7 per cent contraction this year following the restart of the conflict in March.

These updated projections serve a severe blow to a brief period of economic optimism, which followed Lebanon's estimated real GDP growth of 4.2 per cent in 2025. In the summer edition of its Lebanon Economic Monitor, the World Bank noted that the promising rebound—which had been bolstered by increased consumption, investment, tourism, and better high-frequency indicators—was abruptly halted by the March 2026 conflict escalation. This renewed violence caused extensive damage to housing and infrastructure, displaced numerous communities, disrupted supply chains, and heavily impacted tourism and domestic demand.

Due to its high dependence on imports, Lebanon remains exceptionally vulnerable to external shocks, including energy and shipping disruptions stemming from the Iran war. Dahlia Khalifa, World Bank Middle East director, stated that the fragile recovery has experienced a major setback due to the renewed fighting, compounding an already severe social and economic crisis. She emphasized that implementing crucial reforms regarding fiscal management and banking sector restructuring will be vital for restoring confidence, maintaining stability, and securing necessary financing for recovery and reconstruction efforts.

The country continues to grapple with the fallout from the catastrophic economic crisis that began in 2019, which the World Bank ranks among the worst modern economic collapses. During this period, the Lebanese currency plummeted, losing upwards of 95 per cent of its parallel market value against the US dollar. Furthermore, commercial banks implemented informal capital controls that left numerous citizens locked out of their personal savings.

The World Bank also highlighted that public debt remains unsustainable while formal debt restructuring negotiations have yet to commence. Inflation is projected to climb to 17.5 per cent in 2026, fueled by rising oil prices, higher shipping expenses, and supply chain disruptions, which will further diminish the purchasing power of citizens. Although the local currency has maintained some stability at approximately 90,000 Lebanese pounds per dollar, the World Bank cautioned that it could face renewed downward pressure if conflict-related shocks persist or foreign financial inflows decrease.

Meanwhile, Israel maintains its occupation across vast areas of southern Lebanon with no immediate signs of withdrawal, while Hezbollah remains steadfast in keeping its weapons, ensuring the continuation of an unstable environment. Concluding its assessment, the World Bank stated that these recent losses stack additional damage onto the destruction caused by the 2024 conflict, leaving the nation unable to fully recover from that prior round of warfare.