BEIRUT, Aug. 21 (Xinhua) -- Lebanon's economy is projected to contract by 6.4 percent in 2026 as renewed conflict has interrupted a tentative economic recovery, the World Bank said Friday in its latest Lebanon Economic Monitor.
The report said the economy had begun to stabilize in 2025, with real GDP growing an estimated 4.2 percent, marking its strongest performance since 2019. However, the escalation of conflict in March brought the recovery to a halt, with damage to infrastructure, population displacement, and supply-chain disruptions weighing on the economy.
Tourism and domestic consumption, main drivers of the 2025 rebound, were also hit, according to the report, titled "A Conflict-Torn Economy."
"Lebanon's fragile recovery has been sharply set back by the renewed conflict," said Dahlia Khalifa, World Bank division director for the Middle East department, stressing the need for advancing banking and fiscal reforms to restore confidence and mobilize reconstruction financing.
The report noted that Lebanon's fiscal position remained relatively strong during the first half of 2026, building on a surplus of 3.9 percent of GDP in 2025. But public finances are expected to face growing pressure from rising humanitarian and reconstruction costs, wage demands, and slowing revenue growth.
Lebanon's public debt remains unsustainable, with no talks on debt restructuring underway, the report added.
Inflation is forecast to rise to 17.5 percent this year, driven by supply disruptions, higher shipping costs and rising oil prices, further eroding household purchasing power.
The Lebanese pound has remained broadly stable with support from foreign exchange reserves and tighter liquidity, though the World Bank warned of renewed pressure if external inflows weaken or conflict-related shocks persist.
The report estimated that the conflict would reduce GDP growth by 10.4 percentage points compared to a no-conflict scenario.
It warned that prolonged displacement, asset damage, and disruptions to education and health services could weaken medium-term growth. ■
