World News
Lebanon's economy is forecast to shrink by 6.4 per cent this year
By Staff Writer | 22 August 2026
The World Bank says renewed conflict has cut short a recovery that produced 4.2 per cent growth last year, and expects inflation to reach 17.5 per cent.
Lebanon's economy is projected to contract by 6.4 per cent this year, the World Bank said on Friday in the summer edition of its Lebanon Economic Monitor. The forecast reverses a recovery that had produced estimated real growth of 4.2 per cent in 2025, which the bank describes as the strongest performance since 2019.
Lebanon's fragile recovery has been sharply set back by the renewed conflict, adding to an already severe social and economic crisis
Dahlia Khalifa, World Bank Middle East director
A rebound interrupted in March
The bank attributes the reversal to the escalation of the conflict in March, which it says damaged housing and infrastructure, displaced communities, disrupted supply chains and weighed heavily on tourism and domestic demand. The recovery it interrupted had been carried by stronger consumption, investment and tourism, and by improving high frequency indicators, which is the ordinary evidence that an economy has turned. The contraction now forecast reflects a collapse in tourism, weaker consumption, disrupted supply chains, heightened insecurity and prolonged displacement.
These losses compound the damage from the 2024 round of fighting, before any recovery from that episode had taken hold.
Prices, the currency and a debt nobody has started to restructure
Inflation is forecast to reach 17.5 per cent this year, driven by supply disruption, higher shipping costs and rising oil prices, which the bank says will further reduce purchasing power. Lebanon imports heavily and is therefore exposed to shocks to shipping and energy supply. The local currency has stabilised at about 90,000 Lebanese pounds to the United States dollar, but the bank warns it could come under pressure again if foreign inflows fall or if further shocks arrive from the conflict.
Public debt remains unsustainable and restructuring negotiations have yet to begin. That is a plain statement about the position seven years after the crisis that began in 2019, when the currency lost more than 95 per cent of its value on the parallel market and informal capital controls by commercial banks locked many depositors out of their savings. Ms Khalifa said advancing reform, particularly on banking sector restructuring and fiscal management, would be critical to restoring confidence, protecting stability and raising the finance needed for reconstruction and recovery.
What has to change before the arithmetic does
None of the conditions the forecast depends on is inside the country's own control. Israeli forces remain in parts of southern Lebanon and no withdrawal has been announced, and Hezbollah has not agreed to give up its weapons. Until that settles, the reconstruction spending that would lift the figures is the spending nobody will finance, and a forecast of minus 6.4 per cent is a description of that position rather than of any decision taken in Beirut this year.