World Bank Warns Lebanon Economy Could Shrink 6.4% in 2026

Lebanon’s economy is expected to contract by 6.4 percent in 2026, according to the World Bank, as renewed conflict between Israel and Hezbollah threatens to reverse the country’s fragile economic recovery.

In its latest assessment, the World Bank said the conflict had severely affected key sectors of the economy, with tourism, consumer spending and supply chains disrupted by heightened insecurity and prolonged displacement.

The latest downturn comes as Lebanon continues to grapple with an unprecedented financial crisis that began in 2019. The country was also still recovering from the 2024 Israel-Hezbollah war when Hezbollah became involved in the wider regional conflict by attacking Israel in March.

Israel responded with an extensive air campaign and ground offensive. Lebanese authorities say more than 4,300 people have been killed in the conflict.

Inflation Set to Rise

The World Bank projects that Lebanon’s inflation rate will increase to 17.5 percent in 2026, adding further pressure on households and businesses already struggling with the consequences of the prolonged economic crisis.

The outlook represents a sharp reversal from the previous year. Lebanon’s real GDP was estimated to have grown by 4.2 percent in 2025, which the World Bank described as the country’s fastest economic growth since the financial crisis began in 2019.

World Bank Middle East Director Dahlia Khalifa said implementing economic reforms would be crucial to restoring confidence and securing the financing required for reconstruction.

“Advancing reforms particularly on banking sector restructuring and fiscal management will be critical to restoring confidence, protecting stability, and mobilising the financing needed for reconstruction and recovery,” Khalifa said.

Banking Reforms Underway

Lebanon has faced sustained international pressure to implement financial reforms as it seeks access to desperately needed economic assistance.

Last week, the Lebanese Parliament approved amendments to a bank resolution law designed to restructure troubled financial institutions and address weaknesses within the country’s banking sector.

The International Monetary Fund welcomed the legislation, describing it as an important step toward bringing Lebanon’s financial laws in line with international standards.

Lebanon remains in discussions with the IMF over a potential support programme, with the Fund expected to resume meetings in Beirut next month.

The World Bank’s latest forecast highlights the difficult road ahead for Lebanon as authorities attempt to rebuild the economy while simultaneously dealing with the consequences of renewed conflict, financial instability and a growing humanitarian burden.