DUBAI: The International Monetary Fund on Thursday forecast a sharp drop in economic output in the Middle East, North Africa and Pakistan (MENAP) this year due to the Iran war, followed by 6.6 per cent growth in 2027, though it warned that further energy production disruptions could worsen the outlook.
The IMF said MENAP’s output was expected to contract by 1.3pc as a result of the war’s impact on energy production, shipping, tourism, trade and confidence.
Economic growth would increase sharply in 2027, but output in those economies would generally stay below pre-war projections.
The impact of the US-Israeli war against Iran had been substantial, but uneven, with oil-exporting economies directly affected by disruptions to energy production and shipping hit harder, and oil importers proving to be more resilient, the IMF said in its regional outlook released on Thursday in Dubai.
Sees 6.6pc rebound in 2027 if Iran war abates
“This sharp downgrade is concentrated among the economies most directly affected by the conflict,” Jihad Azour, the IMF’s director for the Middle East and Central Asia, said at a press conference.
“Several Gulf oil exporters are projected to experience recession this year,” he added.
Uncertain outlook
According to the IMF regional outlook, Gulf Cooperation Council (GCC) economies are expected to contract in 2026, except Oman.
Bahrain, Kuwait, Qatar, along with non-GCC member Iraq, are forecast to post double-digit declines in gross domestic product.
“Although relatively less affected by the disruptions in energy trade, Saudi Arabia and the United Arab Emirates are now also projected to experience a recession in 2026,” the IMF said in the report.
It said its baseline assumed that the conflict would abate in early 2027 and that trade would gradually normalise during the year, but it said the outlook remained clouded by “exceptionally high uncertainty.” “A more prolonged conflict remains the principal risk to the outlook,” Azour said.
The US State Department on Wednesday ordered some diplomats and family members to leave its missions in Saudi Arabia and plans to withdraw family members from a number of other US missions in the region, officials told Reuters. The move follows escalating missile strikes by Yemen’s Iran-aligned Houthis on the kingdom.
External financial conditions could also tighten if investors reassess AI-driven productivity gains and interest rates rise further amid heightened concerns about inflation and fiscal positions, the IMF said in its outlook.
Domestic demand in oil-importing economies is supported by remittances and tourism flows, favourable financial conditions, and prompt policy responses that safeguard consumers from higher commodity prices, the IMF said.
Growth in the Caucasus and Central Asia was moderating toward a more sustainable pace, the IMF said, forecasting a 5.2pc rise in economic output in 2026 and 5pc in 2027.
The IMF underscored the mantra it delivered during last week’s annual meetings, urging policymakers to prioritise maintaining price stability, while preserving fiscal sustainability, maintaining central bank independence and enacting structural reforms to boost productivity and create jobs.
Published in Dawn, October 23rd, 2026
