Iranupdated 2h ago2 min read
IMF Projects Middle East And Central Asia Economies To Contract 0.3% In 2026 Amid Iran War
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IMF projects Middle East and Central Asia GDP to contract 0.3% in 2026. Kuwait and Iraq face double-digit contractions in 2026 per IMF.
IMF cuts Iran-linked outlook
The International Monetary Fund projected that the economies of the Middle East and Central Asia would contract by 0.3% in 2026, citing the US-Israel war on Iran and prolonged disruption to shipping through the Strait of Hormuz. The IMF forecast that Iran’s GDP would decline by 7.6% in 2026, attributing the deteriorating outlook largely to the prolonged disruption to shipping in the Strait of Hormuz. The IMF said the closure of the strait for longer than anticipated in April pushed its estimates lower, while it anticipated a strong rebound in 2027 if energy movement, trade, and Gulf exports resume normally.
The IMF expected the region’s downturn to be uneven, with Kuwait, Iraq, and Qatar facing the steepest economic contractions, with their GDP projected to shrink by 16.7%, 16%, and 15.6%, respectively. The IMF projected Saudi Arabia’s economy to record a 3.3% contraction in 2026, followed by 7.9% growth next year, and it cut its Iran forecast to a 7.6% contraction amid war, blockade, and U.S. sanctions.
Hormuz disruption and war
The IMF linked its downgrade to the prolonged disruption to shipping in the Strait of Hormuz, which the IMF described as a conduit for one-fifth of global oil supplies in peacetime. The IMF said it expected global GDP to grow 3.1% in 2026, while warning that further escalation in conflicts could weaken growth. The IMF forecast a strong rebound in 2027 if the Strait of Hormuz is reopened in March 2027, with conditions returning to near-normal by October of that year.
The IMF also projected that the Middle East and Central Asia would contract by 0.3% in 2026, a sharp downgrade from the 1.9% growth projected in April. The IMF said it expected the global economy to grow 3.1% in 2026 and warned of a deeply fractured outlook, with the Middle East and Central Asia suffering the most dramatic downward revisions.
What comes next for Iran
The IMF forecast that the Middle East and Central Asia would rebound in 2027 if the Strait of Hormuz reopens and regional production and trade normalize, framing the recovery as dependent on restoring sea access. The IMF projected that the UAE’s economy would contract by 3.9% in 2026 before rebounding with growth of 7.7% in 2027, conditional on the normalisation of shipping routes and the reopening of the Strait of Hormuz. The IMF projected that Bahrain, Kuwait, and Qatar would see double-digit contractions of 11.3%, 16.7%, and 15.6% in 2026, followed by double-digit expansions in 2027 as production, exports, and logistics normalise.
The IMF said it expected global inflation to rise to 4.7% in 2026, driven by the war-induced negative supply shock impacting energy and food prices. The IMF said the forecast was prepared before the latest escalation between Riyadh and the Houthis, including a naval blockade of Saudi ports on the Red Sea and attacks on oil and civilian facilities and tankers.