IMF Forecasts 0.3% Economic Contraction for Middle East and Central Asia

The International Monetary Fund has sharply reduced its economic outlook for the Middle East and Central Asia, forecasting that the region’s economy will contract by 0.3 percent in 2026.

The revised projection marks a significant change from the IMF’s April forecast of 1.9 percent growth. The fund attributed the downgrade to the fallout from the US-Israel war on Iran and prolonged disruption to shipping through the Strait of Hormuz.

The waterway carries one-fifth of global oil supplies in peacetime, according to the IMF outlook. Disruption along the route has added pressure to economies across the region, particularly those heavily exposed to energy production and trade.

Gulf economies face steep declines

Kuwait, Iraq and Qatar were projected to experience the largest contractions. The IMF forecast Kuwait’s gross domestic product would fall by 16.7 percent, followed by a 16 percent decline in Iraq and a 15.6 percent contraction in Qatar.

Bahrain was also expected to record a double-digit decline, with GDP projected to shrink by 11.3 percent. Iran’s economy was forecast to contract by 7.6 percent.

Saudi Arabia was projected to record negative growth of 3.3 percent. The IMF said the country had partly reduced the impact on its energy sector by increasing oil exports through the East-West pipeline.

Kyrgyzstan leads regional growth outlook

Not all economies in the region were expected to contract. Kyrgyzstan was projected to record the strongest performance, with GDP forecast to expand by 9 percent in 2026.

The Middle East and Central Asia was identified as the only region expected to experience negative growth this year. By comparison, emerging and developing Asia was forecast to grow by 5.1 percent, while Sub-Saharan Africa was projected to expand by 4.5 percent.

Latin America and the Caribbean and the United States were each forecast to grow by 2.3 percent. China’s economy was projected to expand by 4.5 percent, while the eurozone was estimated to grow by 1.1 percent.

Global risks remain

Despite the regional downturn, the IMF raised its forecast for global GDP growth to 3.1 percent, up from 3 percent in its previous outlook.

The fund warned that further conflict escalation, changing expectations around artificial intelligence, renewed trade tensions and fiscal vulnerabilities could weaken global growth. It also said stronger AI investment, productivity gains linked to the technology and a sustained easing of geopolitical and trade tensions could improve the outlook.

The IMF’s figures are forecasts for 2026 and may change as the effects of the conflict and shipping disruption develop.