World Bank: Gaza war pulls Lebanon's economy back into recession

As Lebanon grapples with an enduring economic and financial crisis, the World Bank's latest Lebanon Economic Monitor (LEM) for Fall 2023 warns of severe repercussions.

The ongoing conflict centered in Gaza is identified as a significant shock that further undermines Lebanon's fragile growth model. According to the World Bank's report, without the implementation of a comprehensive crisis resolution plan, the country faces a bleak outlook, jeopardizing its physical, human, social, and natural capital.

The report, titled "In the Grip of a New Crisis," provided insights into the economic landscape, highlighting the implications of key developments on Lebanon's future.

The Special Focus section in the report, "The Impact of the Conflict in the Middle East on the Lebanese Economy," delved into the repercussions of the current conflict and its spillover effects, magnified by a prolonged political and institutional vacuum.

Before the recent conflict, the economy was projected to experience growth in 2023 for the first time since 2018, albeit at a modest rate of 0.2 percent. However, the crisis has disrupted these tentative signs of recovery, pushing Lebanon back into recession.

The report stated: "Lebanon's economy is now projected to be back in recession in 2023. Macroeconomic imbalances persist, as the current account remains in a sizeable deficit of 12.8 percent of GDP."

According to the report, the inflation rate, already in triple digits since 2021, is expected to soar to 231.3 percent in 2023, driven by exchange rate depreciation and a rapid increase in dollarization.

It added: "Lebanon topped the list of countries hardest hit by nominal food price inflation in the first quarter of 2023 (at 350 percent year-on-year in April 2023), exacerbating the precarity of living conditions for the poorest and most vulnerable segments of the population."

Jean-Christophe Carret, World Bank Middle East Country Director, emphasized, "Lebanon remains entrenched in a socioeconomic and financial crisis, further exacerbated by institutional and political stalemate."

While acknowledging tourism's recent positive impact on economic growth, Carret stressed that the tourism sector alone cannot substitute for more robust, sustainable growth drivers.

The report also stated: "Assuming that the current containment in the military confrontation to the southern borders persists, a scenario analysis assessing the effect of the drop in tourism spending on economic growth finds that real GDP will contract by 0.6 percent to 0.9 percent (reversing the positive pre-conflict baseline of 0.2 percent growth in 2023)."