IMF sees 1.3% contraction in Middle East, North Africa and Pakistan in 2026

The International Monetary Fund (IMF) has predicted a significant contraction in economic output across the Middle East, North Africa, and Pakistan in 2026, with a drop of 1.3%. This downturn is primarily attributed to the ongoing war between the United States, Israel, and Iran, which has adversely affected energy production, shipping, tourism, trade, and overall confidence in the region. However, the IMF anticipates a rapid rebound, with economic output expected to surge by 6.6% in 2027.

The war's impact has been particularly severe on oil-exporting economies, as these nations face direct disruptions to energy production and shipping routes. In contrast, oil-importing countries have demonstrated relative resilience, bolstered by factors such as domestic demand, remittances, tourism flows, favorable financial conditions, and prompt policy responses aimed at protecting consumers from soaring commodity prices.

Despite the forecasted recovery, the IMF cautions that further disruptions in energy production and trade routes could exacerbate the situation, leading to higher energy prices. Additionally, external financial conditions could tighten if investors reassess AI-driven productivity gains and interest rates continue to rise amidst growing concerns over inflation and fiscal positions.

Looking ahead, the Caucasus and Central Asia regions are projected to experience a more moderate growth rate, with economic output expected to rise by 5.2% in 2026 and 5% in 2027. The IMF emphasizes the importance of policymakers maintaining price stability, safeguarding fiscal sustainability, preserving central bank independence, and implementing structural reforms to boost productivity and generate employment opportunities.