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Macro EconomyMediumUpdated×2•Originally published 22 October 2026•Updated 22 October 2026•
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IMF forecasts 1.3% regional economic contraction in 2026, sharp declines in Gulf

Key Facts

1The IMF expects regional output to contract by 1.3% in 2026 after growth of 3.3% in 2025, then grow by 6.6% in 2027.
2The IMF expects Kuwait's economy to contract by 16.7% in 2026.
3The IMF expects Iraq's economy to contract by 16% in 2026.
4The IMF expects Saudi Arabia's economy to contract by 3.3% in 2026, followed by growth of 7.9% in 2027.
5The IMF's baseline scenario assumes the conflict subsides in early 2027 and trade gradually returns to normal during the year.

The International Monetary Fund expects real output in the Middle East, North Africa, Afghanistan and Pakistan group to contract by 1.3% in 2026, according to its October World Economic Outlook, with economic performance varying sharply across the region during the conflict. The projected decline follows growth of 3.3% in 2025, taking regional output from expansion to contraction this year. The IMF's estimates exclude Afghanistan and Syria from the group total because of insufficient data, despite Afghanistan's inclusion in its statistical name. In a separate estimate published on October 6, the World Bank forecast an average regional output contraction of 2.1% in 2026, following expansion of 3.3% the previous year. In contrast to the regional contraction, the IMF said at its Middle East and Central Asia Department briefing on October 15 that economic activity in oil-importing countries had remained relatively resilient and was expected to remain so.

Country forecasts reveal wide differences in the scale of the downturn, with the IMF projecting that Saudi Arabia's economy will contract by 3.3% in 2026, according to the forecast table in the World Economic Outlook. The same report expects real output in the United Arab Emirates to fall by 3.9% during the year, exceeding Saudi Arabia's projected contraction. In Kuwait, the expected contraction reaches 16.7% this year, according to IMF forecasts cited by The National in its coverage published on October 15. The newspaper also cited a forecast for Iraq's economy to contract by 16% over the same period, a smaller projected decline than Kuwait's and larger than Qatar's. The IMF expects Qatar's economy to contract by 15.6% in 2026, also a steeper decline than forecast for Saudi Arabia and the UAE. Bahrain's projected contraction stands at 11.3% this year, according to the same coverage, with estimates of the downturn varying across Gulf economies.

On addressing the fallout from the conflict, Jihad Azour warned at the IMF's media briefing that "the biggest risk is a prolonged conflict," placing its continuation at the forefront of risks to the economic outlook. The IMF also warned of a possible tightening in external financial conditions, according to Reuters, alongside risks associated with the course of the conflict. Azour recommended supporting those affected through targeted, temporary and budget-neutral cash transfers, specifying the form of fiscal support advocated by the IMF. Against the backdrop of pressures on growth, the World Bank warned that infrastructure damage, delayed investment and depleted fiscal buffers could continue to weigh on activity even after the immediate shock subsides. In a separate address to Gulf finance ministers and central bank governors on October 1, the IMF managing director said that "completing the GCC railway and the Saudi Landbridge will significantly reduce the economic losses caused by the closure of the Strait of Hormuz." In energy markets, Brent crude rose 0.36% to $106.1 a barrel on Wednesday, October 14, according to The National, in a move that preceded the release of the full regional report.

Looking ahead, the IMF's baseline scenario assumes the conflict subsides in early 2027, according to Reuters, the timing assumption underpinning its recovery forecasts. The scenario also assumes trade gradually returns to normal during the same year, alongside the easing of the conflict in the IMF's baseline. On this basis, the IMF expects real output growth for the regional group to return to 6.6% in 2027, following the contraction expected this year. For Saudi Arabia, the World Economic Outlook forecasts growth of 7.9% in 2027, following the projected decline in output in 2026. The World Bank, for its part, sees the regional recovery as depending heavily on the restoration of hydrocarbon production and exports, linking a rebound in activity to their resumption. But Azour warned, in remarks reported by The National on October 15, that economic activity would remain below the path expected before the war through 2030.