IMF forecasts 1.3% regional economic contraction in 2026, sharp declines in Gulf
Key Facts
The International Monetary Fund forecast that economies across the Middle East, North Africa and Pakistan would contract by 1.3% in 2026, according to Reuters, as the region faces the conflict's fallout on energy production, trade and non-oil activity. The decline follows growth of 3.3% in 2025, taking regional output from expansion to contraction this year. In a separate assessment of Gulf Cooperation Council countries, the World Bank forecast an average contraction of 4.3% this year. At the country level, The National cited the IMF as forecasting that Bahrain's economy would shrink by 11.3% in 2026. The fund forecast that Kuwait's economy would contract by 16.7% in the same year, the steepest decline among the economies cited. For Qatar, its forecasts point to a contraction of 15.6%, putting it alongside Bahrain and Kuwait in facing double-digit declines.
Outlining the conflict's impact on Gulf economies, the IMF said damage to energy facilities had reduced production capacity, with the war hitting a core component of economic activity. In remarks during a Gulf Cooperation Council meeting, the fund said the pressures had also spread to non-oil activity. It linked weakness in those activities to declining trade, among the effects of the conflict facing the region's economies outside the energy sector. It also cited weakening business confidence as another factor constraining non-oil activity. It added rising commodity prices to these factors, bringing pressures from trade, confidence and prices together with damage to production facilities.
The energy shock was accompanied by rising crude prices, with the IMF saying in a blog post published in July that prices had surged at the start of the war. Prices then stabilized in a range of $90 to $100 a barrel during the period covered by the post. In a subsequent market move, Brent crude rose on Wednesday to $106.1 a barrel, according to a report published by The National the following day. The gain in that session was 0.36%, in a move that preceded the fund's regional report. That Brent level was above the price range the IMF described in July, while the region's economies faced reduced production capacity and pressure on non-oil activity.
On the economic response, the IMF recommended supporting those affected through targeted cash transfers, limiting assistance to the groups those transfers are intended to reach. It stressed that support should be temporary and remain budget-neutral under its proposed approach to addressing the conflict's fallout. Alongside this assistance, the fund called for trade diversification as one way to strengthen productivity and long-term growth. It also recommended deeper regional integration, among the economic priorities it outlined during the Middle East and Central Asia Department's press briefing. Its recommendations included expanding the capacity to adopt new technology, including artificial intelligence, to support productivity and long-term growth.
But Jihad Azour identified a prolonged war as the main risk to the expected economic trajectory, saying: "The most significant risk is a longer-lasting conflict." According to Reuters, the IMF expects growth across the Middle East, North Africa and Pakistan to recover to 6.6% in 2027. These forecasts assume that trade and shipping return to normal during the first quarter of next year. For exports, the fund assumes gradual normalization by mid-year, according to Reuters' account of its forecasts. This trajectory includes oil prices remaining elevated as trade, shipping and exports return to normal during 2027.