Lebanon Economy Projected to Shrink 6.4 Percent in 2026

Lebanon's economy is projected to shrink by 6.4 percent in 2026, according to the latest World Bank Lebanon Economic Monitor report, titled "A Conflict-Torn Economy."

This downturn follows Hezbollah's decision to renew conflict with Israel in March 2026, which interrupted an early recovery achieved in 2025. In 2025, Lebanon's real gross domestic product (GDP) expanded by an estimated 4.2 percent, marking its strongest growth since the country's financial crisis began in 2019. This recovery was driven by stronger private consumption, investment, and tourism.

The renewed conflict caused further damage to housing and infrastructure, displaced communities, and disrupted supply chains. It also weighed heavily on tourism and domestic demand. Around 360,000 people remain displaced, with at least 22,000 living in collective shelters, according to UN figures. Over 700,000 people are still affected by damage to water infrastructure in parts of southern Lebanon.

At the height of the conflict, 1.2 million people were internally displaced. The World Bank report estimates the conflict will reduce GDP growth by 10.4 percentage points compared to a scenario without the conflict. Lebanon's economy had already contracted by an estimated 5.2 percent in 2024. World Bank Group Middle East Director Dahlia Khalifa stated that Lebanon's fragile recovery has been sharply set back by the renewed conflict.

She added that advancing reforms, particularly in banking sector restructuring and fiscal management, will be critical for recovery. The renewed war followed Hezbollah's attacks on Israel in response to the killing of Ayatollah Ali Khamenei.