- The IMF forecasts a 1.3% economic contraction across the Middle East, North Africa and Pakistan in 2026, as war-related disruptions affect energy production, shipping and trade.
- Also calls for structural reforms to improve productivity and create jobs as economies navigate heightened uncertainty.
The International Monetary Fund (IMF) has forecast a 1.3 per cent economic contraction across the Middle East, North Africa and Pakistan in 2026, citing the US-Israeli-led war against Iran.
The conflict has disrupted energy production, shipping, tourism and trade, while weakening economic confidence across the region.
However, the IMF projects a rebound to 6.6 per cent growth in 2027, assuming the conflict eases and trade gradually returns to normal.
Despite the expected recovery, economic output across the affected economies would generally remain below pre-war projections, the fund said in its regional outlook released Thursday in Dubai.
Energy Disruptions Weigh on Regional Economies
According to the IMF, the war’s economic impact has been substantial but uneven across countries.
Oil-exporting economies have suffered greater pressure from disruptions to energy production and shipping. By contrast, oil-importing economies have shown greater resilience.
The fund warned that further interruptions to energy production and trade routes could push energy prices higher, worsening the regional economic outlook.
Its baseline forecast assumes the conflict will ease in early 2027, allowing trade to gradually normalise throughout the year.
Nevertheless, the IMF cautioned that the outlook remains subject to exceptionally high uncertainty.
Higher Energy Prices Pose Further Risks
Beyond direct supply disruptions, tighter global financial conditions could create additional economic pressure.
The IMF said investors could reassess expectations for artificial intelligence-driven productivity gains, potentially pushing interest rates higher.
Furthermore, rising inflation concerns and deteriorating fiscal positions could tighten external financing conditions, adding to economic uncertainty.
Meanwhile, oil-importing economies have benefited from resilient domestic demand, supported by remittances, tourism receipts and favourable financial conditions.
The fund also attributed their resilience to timely policy measures that protect consumers from rising commodity prices.
IMF Projects 5.2% Growth in Caucasus and Central Asia
Elsewhere, the IMF expects economic growth in the Caucasus and Central Asia to moderate towards a more sustainable pace.
The fund projects the region’s output will grow by 5.2 per cent in 2026, before slowing to 5 per cent in 2027.
Against this backdrop, the IMF urged policymakers to prioritise price stability while maintaining sustainable public finances and central bank independence.
It also called for structural reforms to improve productivity and create jobs as economies navigate heightened uncertainty.