World

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

By John Power

The International Monetary Fund (IMF) has projected that the economies of the Middle East and Central Asia will contract in 2026 as a result of the fallout from the US‑Israel war on Iran. The region’s gross domestic product (GDP) is expected to shrink by 0.3 percent this year, a sharp downgrade from the 1.9 percent expansion forecast in April. The IMF cited prolonged disruptions to shipping in the Strait of Hormuz, which carries about one‑fifth of global oil supplies in peacetime, as a key factor in the downgraded outlook.

Kuwait, Iraq and Qatar are forecast to experience the most severe contractions, with GDP declines of 16.7 percent, 16 percent and 15.6 percent respectively. Bahrain’s GDP is projected to contract by 11.3 percent, while Iran’s economy is expected to shrink by 7.6 percent. Saudi Arabia, which has partially offset the hit to its energy sector by boosting oil exports through the East‑West pipeline, is projected to record negative growth of 3.3 percent.

Kyrgyzstan is expected to have the strongest growth in the region, with GDP forecast to expand 9 percent. The Middle East and Central Asia is the only region expected to experience negative growth in 2026.

For comparison, emerging and developing Asia’s GDP is forecast to grow 5.1 percent, while the economies of Sub‑Saharan Africa and Latin America and the Caribbean are projected to expand 4.5 percent and 2.3 percent respectively. The United States and China, the world’s two largest economies, are forecast to register growth of 2.3 percent and 4.5 percent, while the eurozone’s GDP is estimated to grow 1.1 percent.

The IMF said it expected global GDP to grow 3.1 percent, up from 3 percent in its previous outlook. The Washington, DC‑based institution noted that while economic activity had proved resilient this year, the global economy faces multiple risks. It warned that further escalation in conflicts, a reassessment of expectations surrounding artificial intelligence (AI), renewed trade tensions, and fiscal vulnerabilities could weaken growth. Conversely, stronger momentum in AI investment and productivity gains from AI or a sustained easing of geopolitical and trade tensions could strengthen growth.