Lebanon’s economy is once again heading toward contraction after a brief period of modest growth that had raised hopes for a gradual recovery, according to economic analysts who warn that the country’s latest military escalation could erase recent gains and deepen financial pressures.

After years of successive crises, last year’s limited economic growth had offered a glimmer of optimism that Lebanon might slowly return to a more stable trajectory, supported by long-delayed reforms aimed at reviving economic activity and restoring confidence. But those hopes have largely faded as the country has been drawn into a new military confrontation at a time when it urgently needed political and economic stability.

The conflict, which erupted without a clear political horizon or an accurate assessment of its costs, has once again exposed Lebanon’s fragile economy to the risk of contraction and revived memories of the heavy losses the country suffered during previous rounds of escalation.

With the economy already weakened by structural financial problems and declining investment, the impact of the conflict is expected to be severe. Security tensions are affecting productive sectors and tourism while also weighing on consumption, investment and financial transfers,  threatening to wipe out any progress achieved in recent months.

Economist Anis Bou Diab, a member of the bureau of Lebanon’s Economic, Social and Environmental Council, told Nidaa Al-Watan newspaper that the country had barely begun to assess whether last year’s growth could be sustained before the latest conflict erupted.

“We didn’t even wait to see whether the growth achieved by the Lebanese economy could continue,” Bou Diab said. “That growth itself was essentially unsustainable and occurred while state institutions were not functioning normally.”

Still, Lebanon recorded notable economic growth in 2025. Estimates by Bank Audi and Lebanon’s Ministry of Economy placed growth at around 5 percent, while the World Bank estimated it between 4 percent and 4.2 percent.

Expectations for this year had pointed to stronger and more sustainable growth, particularly if key reforms were adopted. Those measures included legislation related to recovering bank deposits, restructuring the banking sector and passing a broader package of economic reforms.

There were also hopes that Lebanon could reach an agreement with the International Monetary Fund during its spring meetings in Washington in April. Parliamentary elections expected this year were also seen as a potential turning point that could reshape the legislature and pave the way for bilateral economic agreements with several Arab countries.

Instead, Bou Diab said, Lebanon has “slipped into a war without a clear political horizon and without an accurate understanding of its cost or duration.”

“In such circumstances, the natural outcome is economic contraction rather than growth,” he said.

Lebanon has already experienced a similar scenario. In 2024, the economy contracted by about 7.2 percent, according to World Bank estimates, after a 66-day war that began in October 2023 and ended with the implementation of U.N. Security Council Resolution 1701. The conflict caused an estimated $14 billion in direct and indirect losses.

The current war is also generating significant economic damage, Bou Diab said.

The number of displaced people has exceeded 650,000 and continues to rise, according to reports from the Ministry of Social Affairs, which oversees shelter operations.

At the same time, between 50 percent and 60 percent of economic activity has been disrupted, he said.

Rising global oil prices are adding further pressure. Higher energy costs are likely to fuel global inflation that will translate into imported inflation in Lebanon, reducing citizens’ purchasing power and lowering government revenues as economic activity slows.

Based on available data, Bou Diab estimates the Lebanese economy is losing between $30 million and $50 million per day.

“This will likely lead to a new economic contraction,” he said, adding that the downturn may reach at least 4 percent, though its precise scale remains difficult to determine.

The war has also wiped out expectations of a tourism boost during the upcoming holiday season.

Lebanon had been counting on increased tourism around Eid al-Fitr and Easter; periods that traditionally bring significant visitor spending and help support economic growth.

Instead, tourism activity has largely stalled, while the economy is operating only partially. Consumer demand has become concentrated mainly on essential food products as inflationary pressures and rising prices persist.

The economic repercussions could also spread beyond Lebanon’s borders, particularly to the Gulf region.

Lebanon relies heavily on remittances from expatriates, which account for roughly 30 percent of the country’s gross domestic product. More than half of those transfers come from Gulf states including Saudi Arabia, the United Arab Emirates, Qatar and Bahrain.

Any economic slowdown or regional instability affecting those countries could reduce the flow of remittances and further strain Lebanon’s economy, Bou Diab warned.

“The economic situation is far from reassuring,” Bou Diab said, noting that state revenues are declining while financial pressures continue to grow.

That raises serious questions about the government’s ability to improve wages and salaries in the near future given the country’s severe economic and financial constraints.

Amid these bleak indicators, Lebanon’s economy appears to be taking another step backward after tentative attempts to emerge from its deep crisis.

The war not only causes direct losses to infrastructure and markets, but also erodes what remains of domestic and international confidence while delaying reforms that were meant to serve as the gateway to economic recovery.

Although Lebanon managed to record modest growth last year despite extremely difficult conditions, the continuation of the conflict threatens to push the country back into a cycle of economic contraction, declining purchasing power and shrinking state revenues.