World Bank projects Lebanon's GDP to contract by 6.4 per cent in 2026

The World Bank projects Lebanon's GDP to contract by 6.4 percent in 2026, largely due to the ongoing Israel-Hezbollah conflict. This is a significant setback after Lebanon had seen an estimated real GDP growth of 4.2 percent in 2025. The economic decline is attributed to the conflict's impact on housing, infrastructure, tourism, and domestic demand, as well as disruptions to supply chains.

Lebanon's heavy reliance on imports makes it particularly vulnerable to shocks like the current conflict, which has further damaged the country's economy. Dahlia Khalifa, the World Bank's Middle East director, emphasized that advancing reforms, particularly in banking sector restructuring and fiscal management, are crucial for restoring confidence and supporting recovery efforts.

Lebanon continues to grapple with the consequences of a severe economic crisis that began in 2019, with the currency losing over 95 percent of its value against the US dollar on the parallel market. Informal capital controls by commercial banks have left many Lebanese unable to access their savings. While the local currency has stabilized at around 90,000 Lebanese pounds to the dollar, the World Bank warns it could be at risk if foreign inflows decline or if the conflict persists.

The situation in Lebanon is further complicated by Israel's continued occupation of southern Lebanon and Hezbollah's refusal to hand over its weapons, leading to an unstable situation that is expected to last.