World Bank projects a 6.4% contraction in Lebanon’s economy in 2026

The World Bank’s August 2026 Lebanon Economic Monitor projects that the country’s economy will contract by 6.4 percent in 2026. The report, titled “A Conflict-Torn Economy,” says renewed conflict interrupted the fragile recovery recorded in 2025. The 6.4 percent figure is a forecast for the year, not a completed national accounts result; the outlook could change as conditions develop. Keeping that distinction visible matters when comparing the estimate with later data or with the previous year’s rebound.

According to the report, Lebanon recorded estimated real growth of 4.2 percent in 2025, the fastest expansion since the 2019 financial crisis began. Stronger consumption, investment and tourism receipts, together with more positive high-frequency indicators, had supported that recovery. The Bank says the escalation in conflict in March 2026 then damaged more housing and infrastructure, displaced communities, disrupted supply chains, and weighed on tourism and domestic demand. The earlier annual increase therefore did not carry through automatically into 2026.

The report examines the economic impact of the conflict through two channels in particular: tourism receipts and private consumption. These can transmit a shock beyond direct damage and displacement. A fall in visitor spending, for example, can affect the cash flow of service businesses, their suppliers and workers. The World Bank estimates that 2026 growth would be 10.4 percentage points lower than in a counterfactual path without conflict. That comparison does not mean that gross domestic product itself is falling by 10.4 percent.

Public finances recorded an overall surplus equal to 3.9 percent of GDP in 2025. The Bank attributes that result to stronger tax compliance and improved customs and value-added tax collection. The report says the improvement continued in the first half of 2026, but expects pressure to increase during the remainder of the year. Humanitarian and reconstruction needs, pressure for public-sector wage increases and slower revenue growth could all strain the balance. Last year’s surplus therefore does not, on its own, establish that the same fiscal space will be available in 2026.

On debt, the World Bank says public debt remains unsustainable and debt-restructuring negotiations have yet to begin. This indicates that the problem cannot be addressed solely by narrowing the annual budget deficit: a framework with creditors, the condition of the banking system and fiscal reforms also matter. The report describes the banking sector as deeply weakened, despite some progress on parts of its restructuring agenda. The summary does not provide a separate balance-sheet assessment for every bank or a detailed schedule for repaying depositors.

The Bank forecasts inflation of 17.5 percent for 2026. Supply disruptions, higher shipping costs and rising oil prices are among the drivers it cites. If prices rise faster than household incomes, purchasing power can fall and access to food, transport and basic services can become more difficult; this is a household-risk implication of the macroeconomic forecast. The report adds that the exchange rate has remained stable with support from reserve use and tighter Lebanese-pound liquidity, but could face pressure if foreign inflows decline or conflict shocks persist.

The report’s medium-term concern is that displacement and loss of physical capital could do more than temporarily reduce output. Prolonged displacement, interrupted education and health services, and the possible departure of skilled workers could weaken productive capacity and growth in later years, the Bank says. This makes it important to assess recovery by more than the number of businesses that reopen. Safe housing, access to schools and healthcare, and functioning infrastructure are also part of the economy’s ability to produce and employ people.

The World Bank emphasizes that humanitarian support and reconstruction are urgent, while reforms remain important for restoring confidence and supporting durable recovery. Readers should keep three different measures separate: recorded growth in 2025, the 2026 contraction forecast, and the gap against a hypothetical no-conflict path. The report does not treat them as interchangeable data. As new figures on output, prices, revenue and debt become available, they will show how closely the 6.4 percent and 17.5 percent projections match the eventual outcome.