IMF Forecasts 1.3% GDP Contraction for Middle East, North Africa and Pakistan in 2026
nashnova research
The IMF on Thursday forecast the Middle East, North Africa and Pakistan region will shrink by 1.3% in 2026, as the US-Israeli war on Iran hammers energy output, shipping and trade confidence — but projected a sharp rebound to 6.6% growth if the conflict subsides by early 2027.
Why is the IMF calling for contraction next year?
The US-Israeli war on Iran is hitting five channels at once: energy production, shipping lanes, tourism, trade and market confidence.
This means → the drag is not sector-specific — it is a broad-based shock spanning both supply and demand.
In its statement released in Dubai, the IMF described the outlook as facing "exceptionally high uncertainty."
Can the region really bounce back to 6.6% in 2027?
The IMF's premise is explicit: the conflict subsides by early 2027 and trade gradually normalises.
If that holds, regional growth swings from a 1.3% contraction to a 6.6% expansion — a nearly eight-percentage-point reversal.
But the IMF warns: even with that rebound, output levels will still fall short of pre-war forecasts. In plain terms = the bounce stops the bleeding but does not undo the damage already done.
Same region — who gets hit harder, who holds up?
Oil exporters bear the brunt — the war directly disrupts energy production and shipping, choking their main revenue source.
Oil importers show more resilience, supported by four pillars: remittances, tourism income, favourable financial conditions and timely policy responses.
This means → the war does not spread pain evenly — it draws a fault line along oil dependence. The more an economy relies on oil exports, the more exposed it is.
What could make things even worse?
The IMF flags two downside risks: further disruption to energy production and trade routes, which could push energy prices higher.
The second: tighter external financing — triggered by investors reassessing AI-driven productivity expectations, compounded by inflation and fiscal concerns.
In plain terms = if the war widens, oil prices spike again, and global capital gets more expensive for unrelated reasons, the region faces pressure on two fronts at once.
How are the Caucasus and Central Asia doing?
The IMF projects the Caucasus and Central Asia will slow to 5.2% growth in 2026 and 5.0% in 2027.
This reflects a shift from earlier rapid expansion toward a more sustainable pace — not a downturn signal.
What is the IMF prescribing to governments?
The IMF reiterated the policy stance from its annual meetings last week, centred on four priorities: price stability, fiscal sustainability, central-bank independence and structural reform.
This means → the IMF's message is that short-term stimulus is not the answer — holding macro discipline is: keep inflation anchored, don't overspend, and keep politics out of central banks.
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