Israel-Gaza war to drag Lebanon’s economy back into recession, World Bank says

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Lebanon’s economy, which had been on a recovery path after years of turmoil, is projected to be dragged back into a recession as a result of the Israel-Gaza war, the World Bank said.

The country was previously projected to post 0.2 per cent growth in its gross domestic product in 2023, after five years of being in the red, but that is now expected to turn into a contraction of between 0.6 per cent and 0.9 per cent, the Washington-based lender said in its latest Economic Monitor.

Lebanon shares a border with Israel in the south and is at risk of being dragged into the conflict.

“While the country remains mired in a political and institutional vacuum, and a crippling socio-economic crisis for over four years, it has now been hit by another large shock: fear that the current conflict centred in Gaza could escalate further into Lebanon,” the World Bank said.

It said its contraction estimates would hold up if there were no major escalations in border violence between Israel and Hezbollah through the end of 2023.

“A significant escalation of the conflict would also permanently scar Lebanon’s growth potential and carry grave economic implications,” the World Bank said.

Lebanon’s fragile economy last posted expansion in 2017 when GDP rose 0.9 per cent. Since then, it has faced what the World Bank has called one of the worst global financial crises since the middle of the 19th century.

The country had its worst showing in 2020 – during the Covid-19 pandemic – when the economy dropped by an estimated 21.4 per cent, according to World Bank data.

But Lebanon improved markedly in the past two years, reducing its economic contraction to 7 per cent and 0.6 per cent in 2021 and 2022, respectively, underpinned by the key tourism sector and remittances from Lebanese working abroad.

Tourist arrivals in 2022 surged nearly 50.6 per cent, which supported a growth in consumption, and activity in the private sector also showed signs of stabilisation – both of which are highly sensitive to external shocks, the World Bank said.

“While tourism has recently been a positive contributor to economic growth, the tourism sector alone cannot substitute for more comprehensive, sustainable and diverse growth drivers that are better placed to withstand shocks and help put the economy back on a solid recovery path,” said Jean-Christophe Carret, the World Bank’s Middle East country director.