Lebanon’s economy is projected to contract by 6.4% in 2026 as renewed conflict with Israel derails a fragile recovery, according to the World Bank.
The global lender said Lebanon had entered the year on stronger economic footing after recording 4.2% real GDP growth in 2025, its strongest annual growth since the country’s financial collapse in 2019.
That recovery was abruptly disrupted by an escalation in conflict in March, which caused further damage to homes and infrastructure, displaced communities, disrupted supply chains and weakened tourism and domestic demand.
“Real GDP is projected to contract by 6.4 percent in 2026,” the World Bank said in its Summer 2026 Lebanon Economic Monitor, titled A Conflict-Torn Economy.
The lender attributed the expected contraction to the collapse in tourism, weaker consumer spending, supply-chain disruptions, heightened insecurity and prolonged displacement.
Consumer prices are also coming under renewed pressure. Inflation is expected to accelerate to 17.5% this year, driven by supply disruptions, higher shipping costs and volatile fuel prices, according to the World Bank.
Dahlia Khalifa, World Bank division director for the Middle East department, said Lebanon must advance reforms to restore confidence and secure financing for reconstruction.
“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,” Khalifa said at the launch of the report.
Lebanon’s parliament recently approved key amendments to its bank resolution law, establishing a framework for restructuring failing financial institutions and addressing the broader crisis in the financial sector.
The International Monetary Fund welcomed the legislative changes, describing them as an important step toward aligning Lebanon’s financial legislation with international standards.
The IMF has been holding discussions with Lebanese officials over a potential formal bailout programme and plans to resume technical meetings in Beirut next month to assess further structural reforms.
Despite the worsening outlook, former Economy and Trade Minister Alain Hakim said Lebanon could still achieve economic stability if security conditions improve.
“Economic stability in Lebanon is possible amid the current regional chaos,” Hakim told Lebanese news outlet Akhbar Al Yawm, while warning that short-term prospects depend heavily on political and security developments.
He said economic activity that had begun recovering before the latest war could return once the conflict ends, particularly through private-sector investment and individual initiatives.