The Middle East and Central Asia economy is forecast to shrink by 0.3% in 2026 as the fallout from the US-Israel war on Iran disrupts trade and energy markets, the International Monetary Fund has said.
The latest projection marks a sharp reversal from the IMF’s April forecast of 1.9% growth. The institution said prolonged disruption to shipping through the Strait of Hormuz had weighed heavily on the outlook.
The waterway carries about one-fifth of global oil supplies in peacetime. Kuwait, Iraq and Qatar are expected to suffer the steepest contractions, with their economies forecast to shrink by 16.7%, 16% and 15.6% respectively.
Bahrain’s gross domestic product is projected to fall by 11.3%, while Iran’s economy is expected to contract by 7.6%.
Saudi Arabia is forecast to record negative growth of 3.3%. The IMF said the country had partly cushioned the impact on its energy sector by increasing oil exports through the East-West pipeline.
Kyrgyzstan is expected to be the strongest performer in the region, with its economy forecast to expand by 9%.
The Middle East and Central Asia is the only region expected to experience negative growth this year, according to the IMF.
By comparison, emerging and developing Asia is projected to grow by 5.1%, while economies in sub-Saharan Africa and Latin America and the Caribbean are expected to expand by 4.5% and 2.3% respectively.
The United States and China are forecast to grow by 2.3% and 4.5%, while eurozone growth is estimated at 1.1%.
The IMF raised its forecast for global GDP growth to 3.1%, from 3% in its previous outlook, saying economic activity had shown resilience despite a range of risks.
It warned that further conflict escalation, changing expectations around artificial intelligence, renewed trade tensions and fiscal vulnerabilities could weaken growth.
“On the upside, stronger momentum in AI investment and productivity gains from AI or a sustained easing of geopolitical and trade tensions could strengthen growth,” the IMF said.
