The Institute of International Finance (IIF) published on October 11, 2024, a report titled, War in the Middle East: At an Inflection Point, that analyzed the economic implications of the Israel-Lebanon war on the MENA region and the global economy. Focusing on Lebanon, the report emphasized that the war will severely impact Lebanon’s already drained economy, placing it at a new severe inflection point. And to evaluate the war’s impact, it developed two alternative scenarios for the economy:
In the baseline scenario, it postulates a significant Israeli ground invasion and assumes that the conflict lasts through mid-2025, as a result of which “the Lebanese economy will contract by about 10% in 2025. Such a drop in real GDP is explained by an expected acute fall in private consumption, as more than 12% of the population (including Syrian refuges) has left the country, as well as by a substantial decline in exports of goods and services. In the past two weeks, Israel has carried out daily devastating attacks in Southern Lebanon, the Bekka Valley, and southern suburbs of Beirut. In the absence of a diplomatic solution, Israeli attacks could persist through mid-2025 and spread to other parts of Lebanon, including central Beirut”.
In addition, so far the conflict has led “to nearly 2,200 Lebanese deaths and 10,000 injured, while 1.5 million out of the total population of 6 million (including 1.7 million Syrian refugees) have been displaced. Additionally, at least 200,000 Lebanese citizens left the country since the beginning of the year and more Lebanese are set to leave the country in 2025. According to official estimates, more than 15% of the 1.7 million Syrian refugees in Lebanon already returned to Syria due to the war in Lebanon. Furthermore, many buildings have been destroyed and the agricultural sector in the south, and to some extent in the Bekka Valley, has been ruined as the bombardments have caused soil pollution, displaced farmers, and disrupted supply chains. The tourism sector, which used to account for 20% of GDP, has been obliterated. The conflict is also destroying whatever little infrastructure is left after five years of economic and financial disaster. The additional loss in capital stock due to the war could take several years to rebuild, leading to an additional delay in economic recovery. Real GDP could contract by 7% in 2024 and 10% in 2025 if the war continues through mid-2025 (see Table below). This will lead to a cumulative contraction in output (from 2018 to 2025) of around 60%”.
However, under the pessimistic scenario, fighting in Lebanon would continue for most of 2025. This would result in significantly larger losses of life, internal displacement, emigration, and infrastructure destruction than in our baseline scenario. We estimate that under this scenario growth could contract by as at least 15% in 2025 (see Table below). Furthermore, a prolonged and escalated conflict would only serve to further push out the much-needed economic recovery in the country”.
Lebanon in War: Selected Economic Indicators
| 2024 | 2025: Baseline Scenario | 2025: Pessimistic Scenario | |
| GDP in USD Bn | 28 | 26 | 22 |
| Population in Mn | 6 | 5.3 | 4.8 |
| Real GDP Growth % | -7 | -10 | -15 |
| CPI Inflation % | 44.1 | 24.8 | 30 |
| Current Account % GDP | -12.5 | -10.8 | -18.2 |
| Fiscal Balance % GDP | NA | NA | NA |
| Government Debt % GDP | 184 | 168 | 194 |
| Official Reserves USD Bn | 10 | 7 | 3 |
Source: IIF
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