World Bank warns Lebanon economy will contract 6.4% in 2026 after conflict escalation
Lebanon's economy is projected to shrink by 6.4% in 2026 after the March 2026 escalation in conflict with Israel disrupted a fragile recovery, according to the World Bank. The assessment says the renewed fighting damaged housing and infrastructure, displaced communities and hit tourism and domestic demand. It also says supply chains were interrupted, adding to pressure on businesses and households.
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The bank said Lebanon had entered 2026 on stronger footing after expanding by 4.2% in 2025, its fastest real gross domestic product growth since the 2019 financial collapse. That rebound was then sharply reversed by the conflict escalation in March, which the report says weighed heavily on economic activity. Consumer prices are now expected to rise faster, with inflation forecast to reach 17.5%.
The World Bank said the inflation outlook reflects supply disruptions, higher shipping costs and volatile fuel prices. It also linked the downturn to a collapse in tourism, weaker consumption and prolonged displacement. Dahlia Khalifa, the bank's division director for the Middle East, said advancing reforms, especially in banking sector restructuring and fiscal management, would be critical to restoring confidence and supporting reconstruction.
The warning matters because Lebanon is still dealing with the effects of its long financial crisis while also absorbing the economic cost of renewed conflict. A contraction of this size would make it harder for the government to stabilise prices, support households and attract investment. It also raises the stakes for any reconstruction effort, which the bank says will depend on both financing and policy reform.
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The report comes after parliament passed amendments to the bank resolution law, intended to help restructure failing financial institutions and set out a framework for the wider financial sector crisis. The International Monetary Fund has welcomed that legislative step and said it plans to resume technical meetings in Beirut next month to assess further structural measures. Those talks are part of ongoing efforts to secure a formal bailout programme.
What remains unclear is how long the conflict-related damage will continue to affect growth, inflation and reconstruction needs. The World Bank said economic stability is possible, but only if politics and security conditions improve alongside reforms. For now, the outlook points to a deeper downturn and a more difficult recovery path than had been expected earlier in the year.
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