IMF projects 1.3% regional contraction, recessions in Saudi Arabia and UAE

Summary

• IMF forecasts Middle East, North Africa and Pakistan output shrinking 1.3% in 2026 before rebounding
• War has hit energy production, shipping, tourism and trade, with oil exporters taking the heaviest blow
• Gulf debt pricing and 2027 spending plans now rest on conflict easing early next year

The latest

Economic output across the Middle East, North Africa and Pakistan will shrink 1.3% this year before growing 6.6% in 2027, the International Monetary Fund projected in its regional outlook released in Dubai on Thursday, 22 October 2026. The Fund attributed the contraction to the war's impact on energy production, shipping, tourism, trade and confidence. Output stays below pre-war projections even after the rebound.

Details

• The headline figure: The IMF put 2026 output for the Middle East, North Africa and Pakistan at 1.3% below last year's level, with a 6.6% expansion forecast for 2027. The Fund said the recovery still leaves the region short of the growth path projected before the war began.
• Gulf recessions: Every Gulf Cooperation Council economy except Oman is expected to contract in 2026, according to the report. Saudi Arabia and the UAE enter recession despite being less exposed to the disruption in energy trade than their neighbours, the Fund said.
• Double-digit declines: Bahrain, Kuwait, Qatar and Iraq are projected to post double-digit drops in output this year, the IMF said. That places four of the region's hydrocarbon economies among the sharpest contractions in the current forecast round.
• The oil split: The war's economic damage fell hardest on oil exporters, the Fund said, while oil-importing economies proved more resilient. The IMF credited remittance inflows, tourism receipts, financial conditions and rapid policy responses for cushioning importers.
• The baseline assumption: The entire forecast rests on the conflict receding in early 2027 and trade flows normalising gradually over the course of that year, the Fund said. Any departure from that timeline moves the numbers.
• The main risk: The IMF described the outlook as surrounded by an exceptional degree of uncertainty and identified a prolonged conflict as the principal downside risk. The report did not attach a probability to that scenario.
• The Fund's framing: Jihad Azour, director of the IMF's Middle East and Central Asia department, said the sharp downgrade is concentrated in the economies most directly affected by the conflict, and that several Gulf oil exporters are expected to see recession this year.
• Caucasus and Central Asia: The Fund forecast growth of 5.2% in 2026 and 5% in 2027 for the Caucasus and Central Asia, the second region covered by the same outlook report, leaving it on a sharply different trajectory from the Middle East.

Background

The regional outlook is the IMF's twice-yearly assessment of the Middle East and Central Asia. This edition was launched in Dubai, with the same underlying report already briefed in Washington earlier in October.

Between the lines

The gap between a 1.3% contraction this year and 6.6% growth next year is carried almost entirely by one assumption the Fund states openly: that the conflict recedes in early 2027. Because output still lands below pre-war projections even after that rebound, the recovery figure describes a return toward normal trade rather than recovered ground.

What's next

Watch whether the conflict eases in early 2027 as the baseline assumes, how Gulf sovereign borrowing costs respond, and the IMF's next regional outlook update for revisions to the 6.6% rebound figure.

Source: International Monetary Fund, Reuters