Middle East Output to Shrink 1.3% in 2026 on War Disruptions, IMF Says

ERBIL (Kurdistan24) - The International Monetary Fund (IMF) said on Thursday, that it expects economic output in the Middle East, North Africa and Pakistan to fall significantly this year because of the war involving the US, Israel and Iran.

In its October 2026 Regional Economic Outlook for the Middle East and Central Asia, the IMF said the war has disrupted energy production, shipping, tourism and trade, and has weighed on confidence.

It described the outlook as increasingly uneven across the region, with the effects differing widely between countries.

The fund said oil exporters directly affected by disruptions to energy production and shipping saw a sharp slowdown in economic activity. Higher energy prices partly eased the impact on their fiscal and trade balances, it added.

Oil-importing economies showed greater resilience, according to the IMF. It said domestic demand was supported by strong tourism inflows and workers’ remittances, favorable financial conditions, and quick policy responses that limited the pass-through of higher commodity prices to consumers.

The Caucasus and Central Asia also weathered the shock, as remittance inflows were largely unaffected by the conflict, the fund said.

The IMF’s baseline scenario assumes the conflict will ease in early 2027 and trade will gradually return to normal during that year.

On that basis, it expects growth in the Middle East and North Africa, Afghanistan and Pakistan to rebound to 6.6% in 2027, after contracting by about 1.3% in 2026.

The report puts that level about three percentage points below its April forecasts.

The IMF said the projections reflect a sharp V-shaped recovery for oil-exporting economies in the Gulf. Even so, it said their output will generally stay below pre-conflict expectations over the medium term.

Growth in oil-importing countries is expected to accelerate in 2026 and 2027, supported by strong domestic demand as inflation eases.

Growth in the Caucasus and Central Asia is forecast at 5.2% in 2026 and 5% in 2027. The fund said it raised its outlook for the subregion since April.

Inflation is expected to rise in the Middle East, North Africa, Afghanistan and Pakistan in 2026 and to keep falling in the Caucasus and Central Asia.

The IMF said subsidies, price controls and fixed exchange rates helped contain price pressures in parts of the region, at a cost to public finances.

External positions are also weakening in most economies of the region. The current account surplus of the Gulf Cooperation Council countries is projected to shrink from 5% of gross domestic product in 2025 to 1.3% in 2026.

The IMF said the balance of risks remains strongly tilted to the downside, with exceptional uncertainty hanging over the outlook.

It named further disruptions to energy production and trade routes, which could push up energy prices, as the main risk. It also pointed to a possible tightening of external financial conditions.

Low-income and fragile countries remain highly exposed, the fund said, citing their heavy reliance on food imports, high financing needs and declining official development assistance.

The IMF urged policymakers to keep prioritizing price stability while preserving fiscal sustainability. It said monetary policy should be the first line of defense if inflation risks materialize.

It also called for temporary, targeted support for vulnerable households and firms, and for structural reforms to raise productivity, create jobs and diversify trade.

In its separate World Economic Outlook, also for October 2026, the IMF said the global economy has again shown resilience, though to differing degrees, while room for near-term adjustment is shrinking quickly.

It projects global growth of 3.1% in 2026 and 3.4% in 2027, and global headline inflation of 4.7% in 2026, falling to 4.1% in 2027.

The IMF said the full regional report and other documents will be released next week.