Lebanon’s GDP is projected to grow by 4.7% in 2025, supported by reforms and tourism recovery. The recent World Bank report revised the 2024 contraction to 7.1%. Inflation could moderate to 15.2%, but fiscal pressures and the unresolved financial crisis continue to hinder private investment. Jean-Christophe Carret of the World Bank notes political changes may provide an opening for important reforms. A one-year action plan targets macro-financial stability and rebuilding public trust.
Lebanon is looking at a projected real GDP growth of 4.7% for 2025, primarily fueled by expected reforms, tourism recovery, and limited capital inflows. However, the latest Lebanon Economic Monitor (LEM) from the World Bank reminds us that this growth is built on the shaky grounds of a fragile political and security landscape. It warns that without resolving the prolonged financial crisis, attracting substantial investments will remain a challenge.
The Spring 2025 LEM edition, titled “Turning the Tide?” has adjusted the contraction estimate for Lebanon’s economy in 2024 from 5.7% to a deeper decline of 7.1%. This downturn has now accumulated to nearly a staggering 40% since 2019. Inflation rates are expected to ease to around 15.2% next year, assuming the exchange rate remains steady and global inflation stays calm. Better revenue collection and a balanced budget might boost public spending on essential services slightly, but the nation still faces intense fiscal pressures, necessitating wider structural reforms for lasting sustainability.
Jean-Christophe Carret, Middle East Division Director of the World Bank, emphasized a glimmer of hope, stating, “Recent political developments brought a renewed momentum and offer an opportunity to address the fundamentals of Lebanon’s overlapping financial, economic, and institutional crises.” He insists that focusing on impactful measures could guide Lebanon towards a sustainable recovery.
The report also delves into how global trade uncertainties are affecting Lebanon. Though direct impacts are minimal, considering that only about 4% of the country’s total goods exports go to major markets, the indirect effects become trickier to gauge. They depend heavily on how shifts in global trade dynamics will influence Lebanon’s investment climate and economic activity.
In addition, this edition provides special analyses on inflation trends and real effective exchange rates. It suggests that inflation, which previously mirrored global trends, has been largely influenced by exchange rate depreciation since 2019. With a greater use of the dollar and a stable exchange rate in sight, inflation might trend back to pre-crisis norms, though it may remain elevated due to ongoing domestic issues. The real effective exchange rate faced substantial declines during the crisis, yet this did not correlate with improved export performance due to deep-seated structural challenges and extensive dollarization.
The LEM also emphasizes a one-year action plan designed to bolster the government’s reform agenda, drawing from 20 years of World Bank experience in Lebanon. This action plan sets forth high-impact actions aligned with government objectives and aims to be executed within a limited timeframe. The priority actions aim to restore macro-financial stability, rebuild public trust, and establish a fresh economic development model ahead.
In conclusion, Lebanon’s economic outlook holds both promise and peril. The anticipated GDP growth of 4.7% hinges on political stabilization and the reform agenda’s success. As inflation moderates, the pressing need for structural reforms continues to loom large. With focused efforts and projected actions from the government, there is a potential pathway toward sustainable economic recovery, although challenges remain substantial.
Original Source: reliefweb.int
