Lebanon’s economy is expected to contract by 5.0% in 2026 as renewed hostilities with Israel disrupt economic activity, damage infrastructure and deepen the country’s humanitarian crisis, the European Bank for Reconstruction and Development (EBRD) said in its latest Regional Economic Prospects report.

The bank forecasts a 4.0% economic rebound in 2027, provided a sustained ceasefire is achieved and Lebanon is able to repair damaged infrastructure.

The outlook for the broader southern and eastern Mediterranean (SEMED) region is also sharply uneven, with the EBRD forecasting a 0.7% contraction in 2026 before growth of 7.1% in 2027.

For Lebanon, the renewed conflict in the first half of 2026 has delivered another major shock to an economy already struggling with the consequences of previous rounds of fighting and a prolonged financial crisis.

Further damage to infrastructure, particularly in the south, has added to an estimated $11 billion (€9.5 billion) reconstruction bill from previous conflicts.

About 360,000 Lebanese remained displaced as of August 2026, according to the United Nations, although that figure was down significantly from a peak of 1.3 million earlier in the year.

The economic and humanitarian shock has disrupted activity across tourism, a major source of foreign exchange, as well as other key sectors. It has also fueled inflation, which rose to around 20% year on year in April before easing to 15.7% in July.

The EBRD said the economic outlook remains highly uncertain and will depend heavily on developments in the security situation, the pace of reconstruction and progress on long-delayed economic reforms.

Those reforms are considered critical to unlocking international support and restoring access to financing for Lebanon’s private sector.

“Heightened uncertainty” remains a key risk to the outlook, the bank said, alongside the lack of tangible progress on reforms needed to revive the economy and restore access to finance.

A sustained ceasefire would provide an important condition for recovery, but the EBRD’s 2027 growth projection also assumes that Lebanon can repair infrastructure damaged by the latest conflict and begin rebuilding economic activity.