IMF: Middle East and Central Asia Economies Expected to Contract by 0.3% in 2026

The economic fallout from the US-Israeli war and disruptions to shipping through the Strait of Hormuz are expected to weigh on the economies of the Middle East and Central Asia. Kuwait, Iraq and Qatar are among the countries facing the steepest economic declines.

According to the latest economic outlook released by the International Monetary Fund (IMF), the combined gross domestic product (GDP) of the Middle East and Central Asia is projected to contract by 0.3% in 2026. This represents a significant downward revision from the 1.9% growth forecast published in April.

One of the main reasons for the downgrade is prolonged disruption to shipping through the Strait of Hormuz, which accounts for approximately one-fifth of global oil supplies in peacetime.

According to the IMF's estimates, Kuwait, Iraq and Qatar are expected to experience the sharpest economic contractions. GDP is projected to decline by 16.7% in Kuwait, 16% in Iraq and 15.6% in Qatar. Bahrain's economy is forecast to shrink by 11.3%, while Iran's GDP is expected to fall by 7.6%.

Saudi Arabia's economy is also projected to contract by 3.3%. Although the country has increased oil exports through its East–West pipeline, helping partially offset the impact on its energy sector, this has not been sufficient to prevent an overall economic downturn.

Kyrgyzstan is expected to record the region's strongest economic growth, with its GDP projected to expand by 9% in 2026.

Global Economic Growth Remains Positive

According to the IMF's projections, the Middle East and Central Asia will be the only region expected to experience an economic contraction in 2026.

By comparison, emerging and developing Asian economies are forecast to grow by 5.1%, Sub-Saharan Africa by 4.5%, and Latin America and the Caribbean by 2.3%.

The world's two largest economies, the United States and China, are projected to grow by 2.3% and 4.5%, respectively. GDP growth in the euro area is expected to reach 1.1%.

The IMF has raised its forecast for global economic growth to 3.1%, up from its previous projection of 3%. Nevertheless, the institution warns that despite the resilience of global economic activity, the outlook remains subject to several risks.

The report notes that an escalation of conflicts, a reassessment of market expectations surrounding artificial intelligence (AI), renewed trade tensions and financial vulnerabilities could weaken global economic growth.

On the other hand, stronger investment in AI, productivity gains driven by the technology, and a sustained easing of geopolitical and trade tensions could provide additional momentum to the global economy.