IMF: Middle East and Central Asia Economy to Shrink in 2026 Amid War Fallout

The International Monetary Fund (IMF) has announced that the economy of the Middle East and Central Asia is projected to shrink in 2026, primarily due to the repercussions of the US-Israel war on Iran. This downturn could lead to double-digit economic contractions in countries like Kuwait and Qatar.

According to the IMF's latest economic outlook, the region's gross domestic product (GDP) is expected to contract by 0.3 percent this year. This marks a significant downgrade from the 1.9 percent expansion that was projected in April.

Highlights

• The Middle East and Central Asia is anticipated to be the only region experiencing negative growth in 2026.
• Kuwait, Iraq, and Qatar's GDPs are forecast to shrink by 16.7 percent, 16 percent, and 15.6 percent, respectively.
• Bahrain's economy is projected to contract by 11.3 percent, while Iran's is expected to decline by 7.6 percent.
• Disruptions to shipping in the Strait of Hormuz are cited as a key factor in the downgraded outlook.
• Globally, the IMF expects GDP to grow by 3.1 percent.

Details

The IMF attributed the sharp decline in the region's economic outlook to prolonged disruptions in the Strait of Hormuz, a vital waterway through which one-fifth of global oil supplies typically pass. This situation disproportionately affects countries heavily reliant on oil exports.

Saudi Arabia, despite partially offsetting the impact on its energy sector by increasing oil exports via the East-West pipeline, is still estimated to record negative growth of 3.3 percent. Kyrgyzstan is an outlier in the region, projected to achieve the strongest growth with its GDP expanding by 9 percent.

Why it matters

The economic contraction in the Middle East and Central Asia could have substantial implications for global energy markets and supply chains. The ongoing instability and conflicts in the region represent significant risk factors that could further impact the global economy. The IMF has warned that an escalation in conflicts, a reassessment of artificial intelligence (AI) expectations, and renewed trade tensions could weaken overall growth.