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 economies of the Middle East, North Africa, and Pakistan in 2026, followed by a 6.6 percent growth in 2027. This forecast is attributed to the ongoing US-Israeli-led war against Iran, which is adversely affecting energy production, shipping, tourism, trade, and overall confidence in the region.

The IMF attributes the 1.3 percent drop in output primarily to disruptions in energy production, shipping, tourism, and trade, as well as diminished confidence. The impact has been uneven, with oil-exporting economies facing direct consequences due to energy production and shipping disruptions, while oil importers have shown relative resilience. The IMF's baseline assumes that the conflict will subside in early 2027, and trade will gradually return to normalcy during the year.

However, the outlook remains clouded by "exceptionally high uncertainty." The main risks include further disruptions to energy production and trade routes, which could lead to higher energy prices. Additionally, external financial conditions might tighten if investors reassess AI-driven productivity gains and if interest rates continue to rise due to heightened concerns about inflation and fiscal positions.

On a positive note, the IMF notes that economic output in the Caucasus and Central Asia is moderating toward a more sustainable pace. They forecast a 5.2 percent rise in economic output in 2026 and a 5 percent increase in 2027. The IMF emphasizes the importance of maintaining price stability, preserving fiscal sustainability, preserving central bank independence, and implementing structural reforms to boost productivity and create jobs.