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Written by: Staff

SINGAPORE, Sep 14 (Reuters) Lebanon's economy will shrink this year, largely because of Israel's war with Hizbollah, the International Monetary Fund forecast on Thursday.

The IMF said in its twice-yearly World Economic Outlook that high oil prices were making much of the Middle East richer, and that even non-oil exporters would see healthy growth too -- bar Lebanon, where the fund saw GDP contracting 3.5 percent in 2006.

''In Lebanon, growth has been hampered by political uncertainty over the last year, and real GDP is expected to decline substantially in 2006 as a result of the recent conflict,'' the report said.

Beirut has won pledges of billions of dollars in aid, mainly from oil-rich Arab states, to help it rebuild after a 34-day war that did an estimated $3.6 billion of damage to infrastructure.

Lebanese economy minister Sami Haddad said in an interview with Reuters on Aug. 21 that economic output, once expected to increase 5 or 6 percent in 2006, would show no growth or could even contract this year because of the war.

The fund forecast a 3.2 percent drop in Lebanon's GDP followed by a 5 percent rise in 2007 after 1.0 percent growth in 2005.

For Israel, it forecast 4.1 percent growth this year and 4.4 percent in 2007, after 5.2 percent in 2005.

The war started after Hizbollah captured two Israeli soldiers in a cross-border raid into Israel on July 12.

The IMF forecast 5.8 percent growth in 2006 for a group of countries that includes major oil exporters Iran, Saudi Arabia and Kuwait, plus Egypt, Syria, Jordan and Lebanon.

It saw 2007 growth at 5.4 percent. Growth in 2005 was 5.7 percent.


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