Tuesday 13 October 2026
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IMF forecasts Middle East and Central Asia contraction in 2026 as Hormuz shipping disruptions bite

Kuwait, Iraq and Qatar face double-digit GDP declines; region is the only one projected to shrink

By LineZotpaper
Published
Read Time2 min
The International Monetary Fund has projected that the Middle East and Central Asia will be the only region in the world to record negative economic growth in 2026, with GDP expected to contract by 0.3 percent as the US-Israel war on Iran disrupts shipping through the Strait of Hormuz.

The IMF's latest economic outlook, released on Tuesday, marks a sharp downgrade from the 1.9 percent expansion projected in April. The Washington-based institution cited prolonged disruption to shipping in the Strait of Hormuz, a conduit for one-fifth of global oil supplies in peacetime.

Kuwait, Iraq and Qatar are forecast to suffer the most severe contractions, with their economies expected to shrink by 16.7 percent, 16 percent and 15.6 percent respectively. Bahrain's GDP is projected to contract by 11.3 percent, while Iran's economy is expected to shrink by 7.6 percent.

Saudi Arabia, which has partly offset the hit to its energy sector by boosting oil exports through the East-West pipeline, is projected to record negative growth of 3.3 percent. At the other end of the scale, Kyrgyzstan is expected to be the region's strongest performer, with GDP forecast to expand 9 percent.

Other regions are projected to grow, including emerging and developing Asia at 5.1 percent, Sub-Saharan Africa at 4.5 percent, Latin America and the Caribbean at 2.3 percent, the United States at 2.3 percent, China at 4.5 percent and the eurozone at 1.1 percent.

The IMF said it expects global GDP to grow 3.1 percent, up from 3 percent in its previous outlook. While economic activity has proved resilient this year, the institution said the global economy faced multiple risks.

"Further escalation in conflicts, a reassessment of expectations surrounding artificial intelligence (AI), renewed trade tensions, and fiscal vulnerabilities could weaken growth," it said. "On the upside, stronger momentum in AI investment and productivity gains from AI or a sustained easing of geopolitical and trade tensions could strengthen growth."

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Analysis

Why This Matters

  • A contraction across a major oil-producing region, with the Strait of Hormuz disrupted, carries implications for global energy supply, since the strait moves one-fifth of the world's oil in peacetime.
  • The reversal from a projected 1.9 percent expansion to a 0.3 percent contraction within six months shows how quickly war can overturn economic forecasts.
  • The Middle East and Central Asia is projected to be the only region dragging on the world economy in 2026, even as the IMF modestly raised its global growth forecast.

Background

The forecast is framed by the US-Israel war on Iran and its effect on the Strait of Hormuz, a narrow waterway that is one of the world's most critical energy routes. The Gulf states most exposed to the disruption are those whose economies depend heavily on energy exports, while Saudi Arabia has limited the damage by routing additional oil exports through its East-West pipeline. Iran, the country at the centre of the conflict, is itself projected to see its economy shrink by 7.6 percent.

Key Perspectives

IMF: Sees a sharp regional contraction driven by shipping disruption, while raising its global growth forecast slightly on the strength of activity elsewhere. It warns that risks run in both directions. Gulf oil exporters: Kuwait, Qatar and Bahrain face the largest contractions, reflecting their dependence on seaborne energy exports through the strait. Saudi Arabia: Its use of the East-West pipeline shows how alternative export routes can cushion, but not fully prevent, the economic damage. Critics and skeptics: The IMF itself notes that further escalation in conflicts, a reassessment of AI expectations, renewed trade tensions and fiscal vulnerabilities could weaken growth, while AI-driven investment and productivity gains or easing geopolitical and trade tensions could strengthen it.

What to Watch

  • Whether disruption to Strait of Hormuz shipping persists or deepens, since the IMF cites it as the main driver of the downgrade.
  • The course of the US-Israel war on Iran and any further escalation, which the IMF lists as a key downside risk.
  • Whether other regions hold up as forecast, and whether the global growth figure of 3.1 percent withstands the risks the IMF has identified.

Sources

Zotpaper

Written by software from the reporting listed above, scored by an automated standards desk, and published without a person reading it first. If something here is wrong, tell the editor and it will be put right.

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