Lebanon's economy is projected to grow for the first time in eight years, with real GDP expected to expand by 4.7% in 2025, according to updated forecasts from the World Bank. However, the institution warned of significant risks that could derail the fragile recovery as the country emerges from a prolonged political paralysis and conflict with Israel.

The projections, discussed during the World Bank’s Spring Meetings in Washington with the participating Lebanese delegation, follow a grim economic contraction of 7.1% in 2024, which pushed the country’s cumulative GDP decline since 2019 to nearly 40%.

The Bank attributed the anticipated rebound in 2025 to a combination of expected structural reforms, a recovery in tourism, improved domestic consumption, limited reconstruction inflows, and a base effect following years of sharp economic contraction. If realized, this would mark Lebanon's first year of positive growth since 2017.

Lebanon’s economy, currently estimated at $26 billion, has been battered by a multifaceted crisis, exacerbated in the past year by a 13-month Israeli offensive that displaced more than a quarter of the population. A rapid damage and needs assessment (RDNA) by the World Bank estimates physical asset damages at $6.8 billion, economic losses at $7.2 billion, and recovery and reconstruction costs at $11 billion.

The World Bank emphasized that forming a reform-minded government after two years of political deadlock offers a critical opportunity to address Lebanon’s protracted crisis through a comprehensive recovery plan. It stressed that reforms are urgent, citing the country’s five-year-long financial meltdown, the aftermath of the recent conflict, and the enormous reconstruction challenges ahead.

“Lebanon cannot afford the luxury of time,” the Bank cautioned.

The report noted that the fallout from the conflict has exacerbated poverty and vulnerability, particularly impacting agriculture, trade, and tourism, which all account for 77% of total losses. The World Bank warned that low-wage workers and those in the informal sector have been hardest hit, with the agricultural devastation in the south significantly affecting rural communities. Meanwhile, disruptions to health, education, and housing are expected to deepen long-term poverty risks and compound Lebanon’s entrenched social and economic challenges.

Updated World Bank estimates as of April 10, 2025, indicate that the war with Israel shaved 8 percentage points off Lebanon’s 2024 real GDP growth, compared to earlier projections of a 6.6-point hit before the conflict ended. In the absence of war, GDP was forecast to grow by 0.9% in 2024.

Despite the conflict, the World Bank expects Lebanon to post a modest fiscal surplus of 0.5% of GDP in 2024, supported by stronger-than-expected revenue collection and constrained spending. Total revenues, 77% of which are tax-based, are estimated at 15.3% of GDP, outperforming budget targets due in part to improved tax collection in the first nine months of the year. Spending remained contained at 14.7% of GDP.

The surplus was bolstered by spending caps imposed by the central bank on public institutions, which led to a 45% increase in public sector deposits between January and December 2024.

Lebanon’s exchange rate has remained stable at 89,500 pounds to the dollar since July 2023, a stability largely credited to improved revenue collection rather than a solid monetary framework. These surpluses have helped sterilize liquidity, reducing pressure on the exchange rate. However, the World Bank warned that continued reliance on fiscal sterilization to stabilize the currency is contingent on sustained fiscal discipline.

Gross foreign exchange reserves, specifically liquid reserves, rose by $447 million in 2024 to reach $10.089 billion.

The average annual inflation rate fell to 45.24% in 2024, its lowest level since 2020, helped by the steady exchange rate since August 2023. Monthly inflation averaged 1.2% between August and December 2023, except for October, when a sharp rise in education costs skewed the index. In 2024, monthly inflation averaged 1.4%.

Still, Lebanon continued to run a sizable current account deficit, which reached 22.2% of GDP in 2024, driven largely by a goods trade imbalance. Historically, this trade deficit has been partially offset by a services trade surplus, but conflict-related losses in tourism led to a services trade deficit of -3.3% of GDP last year.

The World Bank cautioned that weak balance of payments data and the widespread use of a cash-based, dollarized economy are likely distorting official estimates of the current account deficit.

Outlook for 2025

Looking ahead to 2025, the World Bank maintained its 4.7% real GDP growth forecast, underpinned by expected reforms, improved consumption and tourism, and reconstruction efforts. The growth is also supported by a base effect following the 40% cumulative GDP contraction since 2019.

However, the outlook remains clouded by numerous risks. A deterioration in security conditions could dampen consumer sentiment, deter tourism, reduce financial inflows, and weigh on household spending. In addition, the global impact of rising trade uncertainty could yet affect Lebanon, though direct exposure is limited given that only 4% of the country’s goods exports go to large global markets.

The Bank said indirect effects would depend on how recent geopolitical shifts influence the global economy.

Assuming continued exchange rate stability and no new external inflationary shocks, average inflation in Lebanon is expected to ease further to 15.2% in 2025.

Meanwhile, the unemployment rate is projected to decline slightly from 39% in 2024 to 37.6% in 2025; a modest improvement, but still reflecting deep labor market distress.