Lebanese economic recovery in 2025 will be undone by 2026 conflict, World Bank report shows

Lebanon's economy faces a projected contraction of 6.4% in 2026, a downturn attributed to Hezbollah's decision to renew conflict with Israel. This resurgence of hostilities has nullified the economic recovery that Lebanon began to achieve in 2025, according to the latest World Bank Lebanon Economic Monitor report titled “A Conflict-Torn Economy.”

The report had previously estimated Lebanon's real gross domestic product (GDP) expanded by 4.2% in 2025, marking its strongest growth since the 2019 financial crisis. This recovery was fueled by increased private consumption, investment, and tourism, alongside positive high-frequency economic indicators. However, the renewal of conflict in March 2026 sharply interrupted this progress, causing significant damage to housing and infrastructure, displacing communities, disrupting supply chains, and negatively impacting tourism and domestic demand.

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Lebanon’s economy is projected to shrink by 6.4% in 2026 after Hezbollah’s decision to return to war with Israel wiped out the early recovery achieved in 2025, according to the latest World Bank Lebanon Economic Monitor report.

The conflict's consequences are severe, with approximately 360,000 people remaining displaced, including at least 22,000 in collective shelters, according to UN figures. Over 700,000 people are still affected by damage to water infrastructure in southern Lebanon. The World Bank estimates that the conflict will reduce GDP growth by 10.4 percentage points compared to a scenario without hostilities, adding to an economy that already contracted by an estimated 5.2% in 2024.

Dahlia Khalifa, World Bank Group Middle East Director, warned that the renewed conflict has severely set back Lebanon's fragile recovery, exacerbating an already critical social and economic crisis. She emphasized that advancing reforms, particularly in banking sector restructuring and fiscal management, is crucial for restoring confidence, ensuring stability, and mobilizing financing for reconstruction and recovery.

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Lebanon’s fragile recovery has been sharply set back by the renewed conflict, adding to an already severe social and economic crisis, advancing reforms - particularly on banking sector restructuring and fiscal management - will be critical to restoring confidence, protecting stability, and mobilizing the financing needed for reconstruction and recovery.