War On Top Of Collapse: The Economic Cost Of The 2026 War In Lebanon

WAR ON TOP OF COLLAPSE: THE ECONOMIC COST OF THE 2026 WAR IN LEBANON

Nearly two months into the renewed war in Lebanon, the country has entered a phase of acute humanitarian, social, and economic distress. Lebanon is facing a triple shock: a regional war, continued attacks on and occupation of parts of its territory, and deep structural vulnerabilities rooted in years of unresolved economic collapse. While the hope is that the current temporary truce evolves into a lasting agreement that eases the suffering, such an outcome remains uncertain, and the crisis is already unfolding.

This brief analyzes the transmission channels of this deepening economic crisis, which are multiple and cumulative. Two major disruptions stand out: first, the destruction of physical capital and infrastructure; and second, the worsening of external imbalances which threatens to trigger a new liquidity crisis. The war is therefore generating a dual impact: a stock effect through the destruction of assets, and a flow effect through the contraction of economic activity and income. This translates into supply-side shock, marked by the destruction of farmland and the disruption of trade and industry, but also into a collapse in demand, leading to a broad economic contraction. 

1. HUMAN, CAPITAL, AND OUTPUT LOSSES

A very heavy human and material toll. So far, the 2026 war has caused almost 2,491 deaths and 7,719 injuries, including 881 children either killed or injured. Displacement has reached massive levels, with around one million people forced to leave their homes, 115,432 of whom are accommodated in 631 collective shelters.

Intensification of destruction. The full scale of destruction of housing and infrastructure is not yet quantified, but it adds to reconstruction needs already estimated at $11 billion by the World Bank at end-2024. During the most intense phase of the 2024 war, the daily cost of the war amounted to approximately $157 million. At that pace, six weeks of conflict (before the ceasefire) would already represent more than $7 billion in damages. Until present, nearly 54,000 housing units were either totally destroyed or heavily damaged equivalent to around 25% of the housing damage recorded during 2023-2024.

A new GDP shock on top of the 2019 contraction. The impact of the war must be understood in light of Lebanon’s pre-existing vulnerabilities. The economy had already contracted by nearly 40% in real terms since 2019. For a country with limited fiscal space, the capacity to absorb additional shocks is extremely limited. Indicators confirm a rapid deterioration: the BLOM Lebanon PMI an indicator of private sector business activity fell to 47.4 in March 2026, down from 51.2 in February, marking a 17-month low signaling a renewed contraction in economic activity. While earlier forecasts projected growth of 4–6% in 2026, updated estimates suggest thatreal GDP could contract by 7% to 16%, depending on the duration of the conflict.[6]

A long-term threat to human capital. Although recent data on migration flows is not yet available, earlier trends observed suggest that net emigration is likely to accelerate, particularly among young professionals and skilled workers: some 800,000 people have left Lebanon since 2020, and the net outflow has stood at one million people since 2014. This dynamic may be temporarily constrained by access difficulties to Gulf countries, but over the medium to long term it will continue to erode Lebanon’s human capital.