Zero GDP growth
if ceasefire holds

Bank Audi quarterly report sees ups and downs

According to the latest Bank Audi Lebanon Economic Report for Q1 2026, the country now stands at a precarious juncture. While a US-mediated ceasefire offers a glimmer of hope, the structural and material damage inflicted in a few short weeks has left deep scars across every sector of the economy.

Looking ahead, the economy remains closely linked to the duration required for the conflict to fully subside and the extent of its spillover effects on domestic activity. A ceasefire has been announced and renewed following U.S.-brokered mediation. If this ceasefire keeps on holding, Bank Audi expects that real GDP is expected to stagnate in 2026 (zero growth), avoiding contraction but slowing sharply from an estimated five percent growth the previous year. The absence of negative growth is largely attributable to the relatively short duration of the conflict, if so, which should allow for a post-settlement recovery and a rebound supported by the upcoming summer and holiday seasons.

Currency stability has been broadly maintained through the first quarter of 2026, despite significant economic losses resulting from Israeli strikes across multiple regions. At the same time, the Central Bank recorded a net draw down in its liquid foreign currency reserves, reflecting fiscal pressures associated with the conflict. Between mid-February and end-March 2026, BDL’s liquid FX reserves declined by approximately $539 million, but have shown a trend reversal in its latest published figures. This reduction reflects war-related fiscal strain, including a widening budget deficit driven by emergency spending on conflict response and displacement, alongside weakening public revenues.

On the monetary front, Bank Audi’s report expects no immediate pressures for either depreciation or appreciation in the short term, supporting continued exchange rate stability. On the one hand, there are no fundamental drivers of depreciation, as monetary expansion in lira remains limited relative to the level of available BDL reserves, reducing near-term risks to currency stability.

Price of conflict
The sheer speed of the economic downturn in March was staggering. Estimates of the daily economic loss of the war vary between $60 million to $80 million, added to the billions in physical destruction of homes, infrastructure, and agricultural land. This financial hemorrhaging has forced a ‘wait-and-see’ attitude among investors. The investment-to-GDP ratio, which stood at a healthy 20 percent in 2025, plummeted to below ten percent following the outbreak of hostilities.

Stagflation: A double-edged sword
The economy is currently grappling with classic stagflation. On one hand, the economy is contracting due to widespread uncertainty; on the other, prices are skyrocketing. Consumer prices rose by 15 percent in March 2026 compared to the previous year, driven largely by a supply-side shock in global energy markets. As international oil prices surged by nearly 50 percent transport costs followed suit, rising by 21 percent.

By sector

Bank Audi reports the following sectoral developments:

• Tourism: Hardest hit The momentum vanished overnight. The airport recorded a 65.5 percent drop in passenger activity in March 2026 alone. With each tourist spending an average of $3,000, the forgone revenue is estimated at $10 million daily
• Agriculture: Threat to food security The conflict has devastated the South and Nabatiyeh governorates, which comprise the majority of the 49,564 hectares of damaged farmland. This represents roughly 22 percent of the total cultivated area. The loss of half of beehives and 39 percent of fish stocks, combined with the displacement of over 76 percent of farmers in these regions, poses a direct threat to national food security
• Industry and Trade Industrial activity has been disrupted by approximately 60 percent nationwide. The destruction of critical transit points, such as the Qasmiyeh coastal bridge and Litani River crossings, has isolated industrial zones and severed supply chains
• Real Estate While construction permits actually saw a year-on-year increase in Q1, actual demand has withered. Property sales fell by 29 percent, with sales to foreigners dropping by nearly 44 percent, reflecting a sharp decline in market confidence.

On the monetary and fiscal, Audi’s report is not rosy:

Monetary pressure
While BDL authorities believe there is no immediate risk of a massive currency crash in the short term, the long-term outlook is murkier. If the country returns to persistent fiscal deficits and a shrinking foreign currency mass, fundamental pressures on the currency will inevitably return.

Fiscal fallout
The 2026 budget, which originally expected to yield a surplus of approximately $1 billion, now appears largely disconnected from reality. The government has attempted to bolster revenues by raising VAT to 12 percent and increasing fuel tariffs and container fees. However, the displacement of over one million citizens and the closure of revenue collection centers in conflict-affected areas are expected to create a significant rift between budgeted figures and actual performance.

The Road Ahead: Two scenarios
The Audi report outlines a pivot point for the remainder of the year. If the current ceasefire persists, Bank Audi projects a zero growth scenario (stagnation) for 2026 which is a disappointing but manageable outcome that avoids a full-scale economic contraction. This ‘optimistic’ view assumes the economy can recover some ground during the upcoming summer and holiday seasons.

Under the ceasefire scenario:
• Inflation is expected to hit 20 percent for the year
• BDL Reserves are projected to hover between $11 billion and $12 billion
• Exports are forecasted at $3.2 billion against $18 billion in imports.

However, if hostilities resume, the country faces a much darker path of infrastructure collapse and deepened poverty.

Economic performance in 2026 is a study in resilience met by external shocks. The ‘lifeline’ of the service sector and the adaptability of the private sector remain the country’s best chances for a rebound. Yet, as the Q1 Audi report makes clear, sustainable recovery cannot be achieved through private sector grit alone. It requires permanent stability and meaningful government action to address structural deficiencies in electricity, telecommunications, and fiscal management.
For now, Lebanon waits in the shadow of a fragile ceasefire, hoping that the stagnation of today does not become the collapse of tomorrow.