World Bank Forecasts 6.4% Shrinkage in Lebanon's Economy Amid Ongoing Conflict
Lebanon's economy is set to shrink by 6.4% in 2026 due to the Israel-Hezbollah war, with inflation expected to rise to 17.5%, says World Bank.
By John Mtongoi Newsroom
August 22, 2026
2 min read
The World Bank has projected a 6.4% contraction in Lebanon's economy for 2026, attributing the downturn to the recent Israel-Hezbollah conflict that disrupted the country's fragile recovery.
Lebanon has faced a severe financial crisis since 2019 and was still recovering from the 2024 Israel-Hezbollah war when renewed hostilities erupted in March. The conflict escalated after Hezbollah attacked Israel, prompting a significant Israeli military response involving airstrikes and ground operations. Lebanese authorities report over 4,300 fatalities from the clashes.
According to the World Bank report, the economic decline stems from factors including a collapse in tourism, reduced consumer spending, disrupted supply chains, increased insecurity, and prolonged displacement of people. Inflation is forecasted to climb to 17.5% this year.
Before the current conflict, Lebanon's economy showed signs of improvement with an estimated 4.2% growth in 2025, marking its strongest performance since the 2019 crisis began.
Dahlia Khalifa, the World Bank's Middle East director, emphasized the importance of implementing reforms, particularly in banking sector restructuring and fiscal management, to restore confidence, maintain stability, and secure financing for reconstruction.
In response, Lebanon's parliament recently amended a bank resolution law to address the banking crisis, a move welcomed by the International Monetary Fund (IMF) as aligning Lebanon with international best practices. The IMF plans to resume discussions with Lebanese authorities in Beirut next month.
