IMF says Middle East, North Africa and Pakistan GDP to contract 1.3pc in 2026

The International Monetary Fund (IMF) has projected a significant contraction in the GDP of Pakistan, the Middle East, and North Africa in 2026 due to the ongoing conflict between the US and Iran. The IMF anticipates a 1.3% decrease in output, primarily attributed to disruptions in energy production, shipping, tourism, trade, and overall economic confidence.

However, the outlook predicts a substantial rebound to 6.6% growth in 2027, though economies may remain below pre-war projections for economic output. Oil-exporting nations, directly affected by energy disruptions and shipping issues, are expected to experience more severe impacts compared to oil-importing economies, which have demonstrated resilience through domestic demand supported by remittances, tourism flows, favorable financial conditions, and prompt policy responses.

The IMF cautions that further disruptions to energy production and trade routes could exacerbate the situation by driving energy prices higher. External financial conditions may also tighten, particularly if investors reassess AI-driven productivity gains and interest rates continue to rise amidst persistent concerns about inflation and fiscal positions.

The IMF emphasizes the importance of policymakers prioritizing price stability, fiscal sustainability, central bank independence, and implementing structural reforms to foster productivity growth and job creation.