Lebanon’s firms kept operating as war crushed demand

Lebanon’s private sector may not have come to a halt during the war, but the economic impact was significant.A new firm-level survey by LeadersClub by Lebanon Opportunities finds that the 2026 Lebanon-Israel war produced a broad contraction in business activity, even among companies beyond the zones directly affected by the fighting.

The report, based on a survey of 196 firms conducted between March 25 and April 24, 2026, captures conditions across Beirut and Mount Lebanon, which account for 85 percent of respondents. It focuses on firms in areas where businesses were not forced to fully evacuate or cease operations, offering a view of how the conflict affected the wider operating environment for businesses.

Across that sample, the dominant pattern is not closure, but reduced activity. Firms largely remained operational, but below normal capacity, facing a combination of weaker demand, higher costs, staff disruption, logistics constraints and reduced business confidence.

Revenue impact

Revenue losses were the clearest indicator of distress. In March 2026, 77 percent of firms reported lower revenue compared with February, while 18 percent saw no change and only 5 percent reported an increase.

The year-on-year comparison reinforces the depth of the decline. Compared with March 2025, 74 percent of firms reported lower revenue, indicating that the downturn was not limited to short-term disruption.

The report situates this within a broader pattern of deterioration. For many firms, March 2026 marked a clear break from both the immediate pre-war period and the previous year, pointing to a sharp contraction in business activity rather than a temporary slowdown

At the same time, businesses continued operating. Companies reported being fully closed for an average of five days during the month, while 67 percent said they were operating below pre-war levels. This combination, the report suggests, reflects a situation where firms remain active but with reduced throughput and weaker demand rather than full stoppages.

Demand and cost pressures

Lower demand was the most widely reported business problem, cited by 76 percent of firms. Cost increases followed closely, reported by 62 percent, alongside staff disruption and logistics constraints.

These pressures combined to create what the report describes as a “dual pressures.” Firms were selling less while facing higher operating costs, limiting their ability to absorb losses without adjusting operations, prices or payment schedules.

Cost increases were concentrated in core inputs to business activity. 56 percent of firms reported higher fuel and energy costs, and 47 percent reported higher transport and logistics costs. These channels, the report notes, help explain why firms adjusted operations in ways that prioritize continuity and liquidity over expansion.

Physical damage, by contrast, was not the primary channel of impact. 88 percent of firms reported no direct damage. The report emphasizes that the main effects of the war were transmitted through the broader operating environment rather than through destruction of assets.

For Ramzi el Hafez, publisher of Lebanon Opportunities, the uncertainty surrounding these pressures is central to how businesses and consumers respond. Speaking with The Beiruter, he described an environment defined by unclear timelines and limited visibility on when conditions might stabilize.

“The critical question, which until now has no clear answer, is when the current sitaution will stop ” he said.

El Hafez noted that a scenario of partial stability would likely shape demand patterns.

Life will resume slowly, cautiously and economic activity and consumption will be focused more on necessities than on other purchases.

In such a context, spending on durable goods and real estate would remain subdued, reinforcing the demand constraints identified in the survey.

Business and labor adjustment

Businesses responded by maintaining operations while reducing their intensity. Many firms reported cutting working hours, scaling back production, and temporarily closing parts of their operations, alongside measures such as raising prices and adjusting transport routes

Workforce adjustments followed a similar approach. Hiring freezes and reduced hours were more common than layoffs, and most firms avoided significant changes to overall employment levels. At the same time, 91 percent reported paying salaries on time, suggesting that firms prioritized maintaining payroll even as activity slowed.

The report characterizes this as an adjustment through softer margins, with firms reducing activity rather than workforce size. As a result, labor impacts are partly hidden, with workers remaining employed but facing reduced hours or lower pay.

El Hafez pointed to broader pressures that could reinforce these dynamics.

There will be an impact on salaries, employment, and the cost of living, as inflation continues to be a global phenomenon and prices are considerably higher than in previous years

Taken together, the findings indicate that employment has largely been maintained, but with activity and earnings under pressure across much of the workforce.

Firm size and sector exposure

Firm size emerged as a key determinant in how companies absorbed the economic shock. Smaller firms were more likely to report revenue declines, deeper losses, and pressure on cash flow and operations. They also relied more heavily on measures such as reduced hours and faced tighter operating conditions. Larger firms were more likely to maintain or approach pre-war operating levels and to expect more stable or improving production in the near term, though the report notes they were not insulated from disruption.

Differences across sectors were also clear. Trade firms were especially exposed to demand weakness and logistics disruption. Manufacturing firms faced stronger constraints related to inputs, energy and transport, affecting their ability to sustain production. Service firms showed relatively stronger operating status but continued to face demand and workforce challenges.

On recovery, el Hafez emphasized that outcomes will differ across sectors and depend on external developments.

“Recovery depends on the sector,” he said, pointing to tourism as one area that could see improvement if conditions stabilize, while noting that export conditions, particularly towards Gulf countries, would remain important for manufacturing.

Outlook and investment intentions

The outlook that emerges from the survey is cautious and uncertain. Firms are split in their expectations for production over the next three months, with 33 percent anticipating an increase and 30 percent expecting a decline, while 38 percent expect no change. Employment expectations are more stable, with 63 percent of firms planning to keep staffing levels unchanged, suggesting a wait-and-see approach rather than expansion.

Investment plans remain limited. A notable share of firms report that they are unlikely to invest or have no plans to do so, even if conditions stabilize. The report identifies this hesitation as a constraint on recovery, indicating that while firms may continue operating, they are holding back on longer-term commitments such as expansion or capital expenditure.

El Hafez said near-term policy options are constrained without broader political movement. “Everything that the government is able to do has already been done. The rest is political,” he noted.

He also pointed to the need for a wider resolution and external engagement to shift conditions meaningfully.

If there is a positive political resolution to this issue and if Arab countries, especially Gulf countries, become involved in Lebanon, there will be resources available to mitigate poverty and catalyze economic activity.

Absent that, el Hafez added, progress on agreements such as those with the IMF would take time, leaving limited scope for immediate economic intervention.

Overall, the findings point to an economy where firms continue to operate but under sustained pressure. Policy responses, it argues, should therefore focus on liquidity, operating-cost relief, and supporting demand, with the aim of maintaining business continuity and preventing a temporary shock from becoming a longer-term loss of productive capacity.