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The International Monetary Fund projected a 1.3 percent contraction in combined output for the Middle East, North Africa and Pakistan in 2026, a sharp downward revision from its April forecast that the fund attributed to the impact of the war involving Iran on energy production, shipping, tourism, trade and overall confidence. The IMF’s Regional Economic Outlook for the Middle East and Central Asia released that week anticipates a strong 6.6 percent rebound in 2027 for the grouping, although the fund cautioned that economic output would generally remain below levels projected before the conflict escalated. Oil exporting economies have borne the brunt of the disruptions while importers in the region have shown greater resilience, according to the assessment.
Gulf Cooperation Council economies as a whole are expected to contract in 2026 with Oman as the sole exception, the IMF reported. Bahrain, Kuwait, Qatar and non-GCC member Iraq face forecast double-digit declines in gross domestic product while Saudi Arabia and the United Arab Emirates are now also projected to experience recessions despite being less directly affected by energy trade disruptions. The fund noted that its baseline scenario assumes the conflict will ease in early 2027 with trade gradually normalizing over the course of the year.
The outlook carries exceptionally high uncertainty with risks tilted toward further deterioration, the IMF stated in its October 22, 2026 release. Further disruptions to energy production or trade routes could push energy prices higher while tighter global financial conditions present an additional threat to the region’s recovery prospects. The assessment forms part of the broader World Economic Outlook exercise in which the fund sees global growth slowing to 3.1 percent in 2026 before accelerating to 3.4 percent in 2027.
The war has delivered a large but uneven shock across the Middle East and Central Asia with directly affected oil exporters confronting the greatest challenges, according to the IMF’s analysis. Adaptation by firms and households, resilient financial markets, policy support, supply rerouting and inventory drawdowns have helped limit the overall damage in many economies. The report examines how policy frameworks and structural characteristics influence the transmission of global supply shocks to inflation while highlighting the role of trade diversification in building long-term resilience.
Policymakers in the region should focus on protecting price stability and fiscal sustainability while preserving central bank independence, the IMF advised in the outlook. Structural reforms to boost productivity and job creation also remain priorities as economies seek to recover from the current downturn. The fund’s projections incorporate data available through early October 2026 and reflect the views of IMF staff rather than necessarily those of the organization’s executive directors or member governments.
