IMF Forecasts Economic Contraction for Middle East and Central Asia in 2026 Amid War Fallout

The economy of the Middle East and Central Asia is projected to shrink by 0.3 percent in 2026, a significant downward revision from the 1.9 percent expansion anticipated in April, according to the International Monetary Fund (IMF). This contraction is attributed to the ongoing conflict and its repercussions, with several nations like Kuwait and Qatar expected to face double-digit economic declines.

The IMF's latest economic outlook, released on Tuesday, highlights the prolonged disruption to shipping in the Strait of Hormuz, a critical route for approximately one-fifth of global oil supplies during peacetime, as a key factor for the downgraded forecast. Countries such as Kuwait, Iraq, and Qatar are anticipated to experience the most severe economic contractions, with their GDPs expected to decrease by 16.7 percent, 16 percent, and 15.6 percent, respectively. Bahrain's GDP is forecast to contract by 11.3 percent, and Iran's economy is projected to shrink by 7.6 percent.

Saudi Arabia, while partially mitigating the impact on its energy sector by increasing oil exports via the East-West pipeline, is still expected to record negative growth of 3.3 percent. In contrast, Kyrgyzstan is forecast to be the region's strongest performer, with its GDP expected to grow by 9 percent.

The Middle East and Central Asia is identified as the sole region anticipated to experience negative growth in 2026. Other regions show positive growth projections: Emerging and developing Asia's GDP is forecast to grow by 5.1 percent, Sub-Saharan Africa's economies by 4.5 percent, and Latin America and the Caribbean by 2.3 percent.

Globally, the United States and China, the world's two largest economies, are projected to grow by 2.3 percent and 4.5 percent, respectively. The eurozone's GDP is estimated to grow by 1.1 percent. The IMF anticipates global GDP to grow by 3.1 percent, a slight increase from the 3 percent projected in its previous outlook.

The Washington, DC-based institution noted that while economic activity has shown resilience this year, the global economy faces numerous risks. These include potential escalations in conflicts, shifts in expectations regarding artificial intelligence (AI), renewed trade tensions, and fiscal vulnerabilities, all of which could dampen growth. Conversely, increased AI investment, productivity gains from AI, or a sustained de-escalation of geopolitical and trade tensions could positively impact growth.