Lebanon’s economy faces severe contraction as war disrupts growth, deepens recession, weakens key sectors, intensifies unemployment and instability in 2026.
War deepens contraction to 10 percent
Illustration by Karim Dagher
The Iran support war has shattered all expectations of positive growth for the Lebanese economy in 2026. It has effectively wiped out the 4% growth rate that the World Bank Observatory had anticipated, pushing the economy back into a sharp contraction ranging between 7% and 10%. This is a significant figure with serious repercussions for the economy, reminiscent of the Gaza support war in 2024, which recorded negative growth of around 7.5%.
Hezbollah’s refusal to surrender its weapons and its opposition to reaching a peace settlement that would rescue Lebanon from its economic fragility have kept the country in a “no war, no peace” condition. As a result, there is neither stability nor a security horizon, but rather a state of destructive stagnation. This waiting phase is considered the longest and most dangerous for investment, tourism, and business. It forces institutions to drastically cut expenses and, in some sectors, shut down entirely, while unemployment rates rise; deepening recession, weakening purchasing power, turning non-essential goods into delayed luxuries, and making recovery both difficult and postponed.
The World Bank Observatory’s most realistic scenario for Lebanon’s 2026 growth had projected 4%, provided that ongoing government reforms continued and security stability was maintained. Some forecasts were even more optimistic, expecting growth to reach 6%.
The situation is more dangerous than before
The worst aspect, according to officials, is that Lebanon’s current situation has become more dangerous than previous wars and crises that struck the country. Why?
Fouad Zmokhol, Dean of the Faculty of Business Administration at Saint Joseph University in Beirut and President of the International Federation of Lebanese Businessmen and Women, told Nidaa Al-Watan that the current economic crisis Lebanon is facing is more difficult than previous crises for several reasons:
- Lebanon has not yet healed from the largest economic crisis, classified by the World Bank as one of the worst in modern history.
- The damage caused by the 2020 Beirut Port explosion, which affected both people and infrastructure.
- The 2024 war, and now the country finds itself facing a new war.
In 2025, Zmokhol says, the Lebanese economy recorded growth of 3.8% according to the World Bank Observatory, with expectations for the current year ranging between 4.5% and 6%. However, the war changed the equation and pushed the economy backward again, turning growth negative at between -7% and -10%, due to slowed economic and investment activity, lack of confidence, and the absence of future vision.
All of this will affect productive activity and public sector revenues, which have declined by 40% to 50%. Even the 300,000 LBP tax on gasoline has been eroded due to imported inflation and rising global oil prices, which reached high peaks—reflecting directly on the daily life of Lebanese citizens, especially amid a regional economic slowdown as Gulf countries remain exposed to instability.
Pillars of the economy
According to Zmokhol, the Lebanese economy rests on three main pillars:
- Remittances from expatriates, estimated at $6-7 billion annually, part of which comes from expatriates in the Gulf whose incomes have declined due to the war.
- Investments flowing into Lebanon.
- The tourism sector, which plays a significant role in GDP and the state budget. 2026 was expected to be a strong tourism year, especially during religious holidays (Eid al-Fitr, Easter, Eid al-Adha) and the summer season.
Thus, the weakening of these pillars would paralyze the Lebanese economy and cut off its growth momentum and economic cycle. But why does the Lebanese economy remain fragile?
Reasons for economic fragility
Successive political, security, and financial crises over the past years have accumulated and weakened the Lebanese economy, making it highly sensitive to every regional and domestic shock, after having once achieved record growth levels.
Between 2007 and 2008, the economy followed an upward trajectory, peaking in 2009 when growth exceeded 10%. At that time, the economy was supported by capital inflows, a strong banking sector, growth in tourism and services, and relative monetary stability. However, it gradually entered a slowdown phase starting in 2011 with the onset of the Syrian crisis and declining regional stability.
From that year onward, economic performance fluctuated. Projects were frozen, Gulf investments declined, and the economy experienced gradual slowdown due to regional tensions. Growth before the outbreak of the 2019 crisis fell to low levels, reaching 0.9% in 2017 and 1.9% in 2018, before turning negative in 2019.
The phase of actual recession
The economy entered an actual recession in 2019, with a near-total halt in capital inflows and liquidity, alongside declines in consumption, investment, and real estate activity. This was a direct prelude to the financial and economic collapse that erupted at the end of that year, with growth recorded at around -6%.
2020 was the worst year in modern Lebanese economic history, with negative growth reaching -26% as a result of the collapse of the financial and economic system, the sharp depreciation of the Lebanese pound, the COVID-19 pandemic, and the Beirut Port explosion on 4 August, which delivered the final blow.
In 2021, 2022, and 2023, the economy continued to contract, with limited and fragile recovery. Growth ranged between 2% in 2021 and 1% in 2022, before declining again in 2023 to around 0.7%, despite exchange rate stabilization in mid-2023 at 89,500 LBP per dollar after reaching 140,000.
According to IMF estimates, Lebanon experienced a sharp downturn in 2024, with growth at -7.5% due to the Gaza support war, leading to declines in tourism, investment, and continued contraction. However, in 2025, the economy saw a temporary improvement to around 4%, but it remained a fragile and unsustainable recovery, with forecasts of a major contraction potentially reaching 10% due to ongoing war conditions.
Thus, an economic contraction of 10% means Lebanon would enter a cycle of rising unemployment, poverty, and pressure on the currency, making recovery increasingly slow and difficult the longer the recession persists.
