Middle East, Central Asia economies to shrink 0.3% in 2026: IMF

The economies of the Middle East and Central Asia are projected to contract by 0.3% in 2026 as the US-Israel war on Iran and prolonged disruption to shipping through the Strait of Hormuz hit economic activity, according to the International Monetary Fund (IMF).

The forecast marks a sharp downgrade from the 1.9% growth projected for the region in April, the IMF said in its latest World Economic Outlook released on 13 October.

Kuwait, Iraq and Qatar are expected to face the steepest economic contractions, with their gross domestic product (GDP) projected to shrink by 16.7%, 16% and 15.6%, respectively.

Bahrain's economy is forecast to contract by 11.3%, while Iran's GDP is expected to decline by 7.6%. Saudi Arabia, the region's largest economy, is projected to record a 3.3% contraction despite efforts to maintain oil exports through alternative routes.

The IMF attributed the deteriorating outlook largely to the prolonged disruption to shipping in the Strait of Hormuz, a strategic waterway through which around one-fifth of global oil supplies pass during peacetime.

The disruption has placed energy exports, trade flows and economic activity across the region under significant pressure, with oil-dependent economies particularly vulnerable to interruptions in shipments.

Saudi Arabia has partly offset the impact on its energy sector by increasing oil exports through its East-West pipeline, which allows crude to be transported towards the Red Sea without passing through the Strait of Hormuz.

However, the IMF's projections indicate that alternative export routes have not been sufficient to shield the region from the broader economic consequences of the conflict.

Despite the widespread downturn, Kyrgyzstan is expected to record the region's strongest economic performance, with GDP projected to expand by 9% in 2026.

The Middle East and Central Asia is the only region forecast to experience negative economic growth this year, highlighting the uneven impact of the conflict on the global economy.

Emerging and developing Asia is projected to grow by 5.1%, while Sub-Saharan Africa is expected to expand by 4.5%. Latin America and the Caribbean are forecast to record growth of 2.3%.

Among the world's largest economies, the United States is projected to grow by 2.3% and China by 4.5%. The eurozone economy is expected to expand by 1.1%.

Global growth outlook

Despite the regional downturn, the IMF expects the global economy to grow by 3.1% in 2026, up from the 3% projected in its previous outlook.

The Washington-based institution said economic activity had remained resilient, but warned that several risks could undermine the global recovery.

"Further escalation in conflicts, a reassessment of expectations surrounding artificial intelligence (AI), renewed trade tensions, and fiscal vulnerabilities could weaken growth," the IMF said.

The fund also identified potential upside risks, including stronger investment in artificial intelligence, productivity gains from the technology and a sustained easing of geopolitical and trade tensions.

The outlook underscores the extent to which geopolitical instability can affect economic performance beyond the countries directly involved in a conflict. Disruptions to major shipping routes can raise uncertainty over energy supplies and trade, with consequences for regional economies and global growth.

While the IMF's global forecast points to continued expansion, the sharp deterioration in projections for the Middle East and Central Asia highlights the economic costs of prolonged conflict and disruption to critical energy transport routes.