IMF Downgrades Middle East Growth to 0.3 Percent Contraction

The International Monetary Fund has sharply downgraded its 2026 growth outlook for the Middle East and Central Asia, projecting a 0.3 percent contraction. This replaces a previous forecast of 1.9 percent growth. The decline follows a conflict that began in February with US-Israeli strikes on Iran, resulting in the closure of the Strait of Hormuz and the disruption of approximately 20 million barrels of oil daily.

Oil-dependent economies are facing the steepest losses, with Iraq, Kuwait, Qatar, and Bahrain projected to experience double-digit GDP contractions. Specifically, Kuwait is expected to shrink by 16.7 percent, Iraq by 16.0 percent, Qatar by 15.6 percent, and Bahrain by 11.3 percent. Iran's economy is forecast to shrink by 7.6 percent amid naval blockades, sanctions, and resumed military exchanges.

Saudi Arabia and the United Arab Emirates are projected to see smaller contractions of 3.3 percent and 3.9 percent, respectively. Saudi Arabia mitigated some losses using its East-West oil pipeline, though that infrastructure was recently targeted by strikes. Oman is the regional exception, with a projected growth of 4.1 percent. While oil prices initially doubled, they have since settled 20 to 40 percent above pre-conflict levels.

Globally, GDP growth is forecast at 3.1 percent. The IMF notes that while AI investment provides positive momentum, energy shocks from the conflict act as a counter-force. The organization anticipates a sharp regional rebound in 2027, with growth reaching 6.3 percent as logistics and production normalize.