SINGAPORE - War-torn Lebanon is set for an economic slump this year because of the month-long military offensive by Israel but it should bounce back strongly in 2007, the IMF said Thursday.

The Lebanese economy is expected to contract 3.2 percent in 2006, after 1.0 percent growth in 2005 and a 6.0 percent expansion in 2004, the International Monetary Fund said in its World Economic Outlook report.

But Lebanon should see a rebound next year with gross domestic product (GDP) forecast to expand by 5.0 percent, it added.

"In Lebanon, growth has been hampered by political uncertainty over the last year and real GDP (gross domestic product) is expected to decline substantially in 2006 as a result of the recent conflict," the IMF said.

In contrast, the Middle East as a whole is projected to see strong economic growth of 5.8 percent in 2006 and 5.4 percent in 2007, the report said.

The month-long war that started between Israel and the Hezbollah Shiite militia in mid-July shattered Lebanon's economy, destroying thousands of homes as well as roads, bridges and power plants and scaring off tourists.

Donor nations earlier this month pledged 940 million dollars in aid to help Lebanon rebuild smashed infrastructure and recover from the Israeli offensive which is estimated to have caused several billion dollars' worth of damage.

Copyright © 1999-2006 Lebanonwire^®.com. All rights reserved.