IMF Cuts MENAP 2026 Forecast to a 1.3% Contraction, With a 6.6% Rebound Set for 2027

The International Monetary Fund expects the Middle East, North Africa, Afghanistan and Pakistan region to shrink 1.3% in 2026, a downgrade of 2.7 percentage points from its April projection. The fund's Regional Economic Outlook, released Thursday, puts growth back at 6.6% in 2027 — a figure that rests on the Middle East war abating and trade returning to normal gradually across that year.

Oil exporters absorb most of the damage. GCC output is projected to contract 4.8% in 2026, against a 2% expansion forecast in April and after growth of 4.5% in 2025. The bloc is then seen rebounding 9.1% in 2027.

A wide spread of national contractions

Kuwait and Qatar carry the steepest declines among Gulf states, at 16.7% and 15.6% respectively. Iraq's economy is projected to shrink 16%. Bahrain is expected to contract 11.3%. For Saudi Arabia the fund projects a 3.3% contraction and for the UAE 3.9% — against April forecasts of 3.1% growth for each. Both are expected to recover strongly in 2027, with Saudi growth at 7.9% and the UAE at 7.7%.

Oman is the outlier. It is the only GCC economy projected to grow this year, at 4.1%, up from 3.5% in the April round. The fund attributes that to the country's limited exposure to the Strait of Hormuz, the shipping route carrying Gulf energy exports.

Output losses along the export chain

Oil and gas production in directly affected exporters fell from 33 million barrels per day in February to close to 19 million in May. Qatar's output dropped by as much as 86%. Saudi Arabia and the UAE fared better than their neighbours because damage was more contained and alternative pipelines absorbed part of the shock. Oman's production rose.

There was a partial recovery after May, then another deterioration. In August, disruption to pipeline operations and to maritime traffic through Bab el Mandeb pushed Saudi production to its lowest level since the conflict began.

Oil importers move the other way

The region's oil importers are on a different trajectory. Their growth is projected to accelerate to 4.2% in 2026 from 3.7% in 2025, then to 4.4% in 2027. Domestic demand held up on buoyant remittances and tourism, favourable financial conditions and prompt policy responses.

Egypt is projected to grow 5.1%, 0.9 percentage point above the April forecast. Jordan's projection is unchanged at 2.7%, as is Pakistan's at 3.6%. Figures for Egypt and Pakistan cover their July-to-June fiscal years.

That split matters. The usual pattern in which Gulf exporters cushion the wider region has inverted: the countries without large hydrocarbon exports, supported by remittance and tourism inflows, are carrying growth while the producers contract.

Support is broad but poorly aimed

IMF staff counted about 50 discretionary support measures across the Middle East and Central Asia since the war began. Roughly three-quarters of them were untargeted. Most sought to shield households and firms from higher energy and food prices through fuel subsidies, price controls, tax reductions and direct transfers.

The price path behind the numbers

The baseline assumes the conflict eases in early 2027 and trade normalises over the course of the year. Oil is expected to average about $96 a barrel in 2026 and $87 in 2027, well above the April assumptions of $82.2 and $76. Prices are seen peaking near $110 late in 2026 before falling steadily.

Crude rose from about $65 a barrel in January to nearly $118 at the end of March. Brent moved above $100 in September, roughly 50% above pre-war levels. In the United States, jet fuel prices climbed about 85% from late February, diesel 68% and gasoline 45%. Natural gas prices in September sat about 150% above where they stood before the conflict.

Inflation, current account and the fiscal line

MENAP inflation is projected to rise to 13.8% in 2026 from 11.7% in 2025, then ease to 10.8% in 2027. Average GCC inflation is expected to stay low by comparison at 2.7% in 2026 and 2.4% in 2027, returning to 2% from 2028.

The GCC current account surplus narrows from 5% of GDP in 2025 to 1.3% in 2026, then rebounds to 4.6% in 2027. The bloc's overall fiscal deficit widens from 0.8% of GDP in 2025 to 2.3% in 2026 before turning into a 0.6% surplus in 2027. Saudi Arabia and the UAE, both holding sizeable buffers, could consider easing fiscal policy within a credible medium-term framework.

Risks lean one way

The outlook is weighted to the downside. Renewed hostilities and further disruption through the Strait of Hormuz could extend output losses and drive energy prices above the baseline as buffers thin out. A reassessment of artificial intelligence returns in advanced economies could trigger equity corrections, weaken global demand and pull oil prices lower. Higher interest rates would raise borrowing costs for economies with large financing needs.

Global growth is put at 3.1% in 2026 and 3.4% in 2027. The world economy was described as resilient but increasingly uneven.

What policymakers are being told to do

Monetary policy should serve as the first line of defence if inflation risks materialise, the fund said. Beyond that, governments should rebuild fiscal buffers, swap broad-based subsidies for targeted, temporary and budget-neutral cash transfers, and keep structural reforms moving to lift productivity, diversify trade and deepen regional integration.

The damage outlasts the forecast window. Cumulative Gulf exporter output between 2026 and 2030 is projected to stay below pre-conflict expectations, with most of the shortfall coming from lost activity in the non-oil sector. MENAP growth settles at 3.7% by 2031; GCC growth at 3.4%.