Lebanon’s economic recovery has been thrown into fresh trouble by the latest war, with the World Bank warning that the country’s economy is expected to shrink by 6.4 percent this year as fighting hits tourism, spending and business activity.
The country has been struggling with a severe financial crisis since 2019 and was still dealing with the effects of the 2024 Israel-Hezbollah war when the Iran-backed group entered the wider Middle East conflict in March by attacking Israel.
Israel responded with an extensive air campaign and a ground offensive in Lebanon. Lebanese authorities say more than 4,300 people have been killed in the fighting, adding to the pressure on an economy already weakened by years of financial problems.
The World Bank said the latest conflict had reversed the progress Lebanon had made towards recovery, with several key areas of economic activity now facing major disruption.
“Due to the war, "real GDP is projected to contract by 6.4 percent in 2026, reflecting the collapse in tourism, weaker consumption, disrupted supply chains, heightened insecurity, and prolonged displacement," the World Bank said in a report.”
The economic downturn is also expected to come with higher prices, with inflation forecast to reach 17.5 percent in 2026.
The latest figures are a sharp change from the performance recorded last year, when Lebanon’s economy began to show signs of improvement. The World Bank estimates that real GDP expanded by 4.2 percent in 2025, calling it “the fastest since the onset of the 2019 financial crisis”.
The bank said the recovery now depends heavily on Lebanon making progress on key economic reforms, particularly changes to the banking sector and management of public finances.
“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," Dahlia Khalifa, the World Bank's Middle East director, said.”
International partners have continued to push Lebanon to introduce financial reforms as the country seeks the funding required to deal with the crisis and support reconstruction.
Parliament moved forward with part of that process last week by approving amendments to a bank resolution law. The changes are intended to help restructure troubled banks and address the wider problems affecting Lebanon’s banking system.
The International Monetary Fund welcomed the legislation and said it showed progress towards bringing Lebanon’s laws closer to international standards.
The IMF described the move as “a very good step that reflects Lebanon's commitment to aligning its legislation with the best international practices”.
Lebanon has also been engaged in talks with the IMF as it seeks a way out of its long-running financial crisis. The Fund said it plans to resume its meetings in Beirut next month.
The latest World Bank forecast leaves Lebanon facing another difficult economic period, with the war threatening to undo the gains made in 2025 just as the country was beginning to move towards recovery.