World Bank report cites
2025 wins countered by war

GDP to contract by 6.4 percent

Recovery possible conditional on stability, discipline and reforms

The World Bank considers that the path back to economic growth remains within reach, but only if a demanding set of conditions are met, according to its just published Lebanon Economic Monitor: ‘A Conflict-Torn Economy’. “Lebanon’s fragile recovery has been sharply set back by the renewed conflict, adding to an already severe social and economic crisis, Advancing reforms will be critical to restoring confidence, protecting stability, and mobilizing the financing needed for reconstruction and recovery,” said Dahlia Khalifa, the newly appointed Middle East Director of the World Bank Group.

Banking first
The report lays out what it calls the prerequisites for a durable recovery. Chief among them is an end to hostilities and the stabilization of security conditions, which would allow displaced families to return home and reopen shuttered businesses in the hardest hit areas. Alongside this, it points to banking sector laws as a make or break condition. It wants to see full implementation of the Bank Resolution Law (BRL) along with structural amendments to the Financial Stabilization and Depositor Recovery Law (Gap Law), changes that would force equity losses to be absorbed before depositors and restore battered bank balance sheets. Parliament ratified crucial amendments to the BRL, a step the World Bank called foundational for building a modern legal framework to handle banking crises.

GDP up and down
The report stops short of offering specific growth forecasts for 2027 and beyond, citing volatility that makes precise projections unreliable. Before conflict reignited in March, the country had been on an encouraging trajectory. Real GDP growth for 2025 was revised upward to 4.2 percent, the fastest pace since the 2019 financial meltdown began. The expansion was broad based, fueled by stronger consumption, a robust tourist season, and a pickup in construction activity. That momentum did not survive the renewed fighting that began on March 2. The World Bank now projects the economy will contract by 6.4 percent in 2026, a downturn steeper than the 5.2 percent contraction recorded during the 2024 conflict. The renewed hostilities have inflicted a heavy humanitarian toll, displaced more than a million people, and caused extensive damage to housing and infrastructure, concentrated mostly in South Lebanon, Nabatieh, and Beirut’s southern suburbs.

Inflation to flare up again
Inflation had been cooling sharply, falling from 45.2 percent in 2024 to 14.6 percent in 2025, a short-lived price stabilization before the latest shock hit. It is expected to climb back to 17.5 percent this year as supply disruptions, higher shipping costs, and rising oil prices squeeze household budgets. Fiscal performance is also likely to weaken in the second half of the year, as reconstruction spending rises and a retroactive public sector wage increase takes effect. The banking sector, meanwhile, remains deeply impaired.

Fiscal discipline
The report says that finances must be kept in order while still restructuring its Eurobonds and funding reconstruction, a balancing act it describes as essential but far from guaranteed. Sustained growth will depend on mobilizing international aid, unlocking an agreement with the International Monetary Fund (IMF), and attracting foreign investment to rebuild housing and infrastructure. The fiscal picture has brightened. The government posted an overall surplus of 3.9 percent of GDP in 2025, helped along by improved tax compliance and stronger collection of customs duties and value added tax. That discipline carried into the first half of 2026, aided by a gasoline excise tax increase introduced in February. Public debt, though still unsustainable by most measures, continued to ease as a share of the economy, dropping from 150 percent of GDP in 2024 to 130 percent in 2025, with a further edge down to 128 percent projected for 2026. The Central Bank (BDL) also managed to keep the exchange rate steady.

The war toll is too heavy
The report’s special focus section puts a price tag on the damage. Unlike the 2024 conflict, the World Bank warns that this round of displacement may prove far more difficult to reverse, given that more than 90,000 housing units have been damaged or destroyed, a level of destruction that could leave lasting scars on Lebanon's productive capacity for years to come. Tourism losses alone are estimated at $3 billion, split between $1.84 billion in lost travel receipts and $1.16 billion in unrecorded spending by expatriates who stayed away. Private consumption losses add another $570 million, concentrated in the areas hit hardest by displacement and destruction, with the southern suburbs of Beirut accounting for $243 million, Nabatieh for $186 million, and the South for $140 million. Combined, these losses total $3.57 billion dollars and are projected to shave 10.4 percentage points off GDP growth relative to a no conflict scenario.