MENAAP Output Set to Contract 2.1% in 2026 as Gulf Economies Slump
Qatar faces a 20.9% decline and Kuwait 14.6%, while Oman is the only Gulf state expected to grow, per the World Bank's October update.
Tariq Benali Tariq Benali covers business and corporate news across the UAE and MENA for Anecdoted, tracking the deals, leadership moves and regulatory shifts behind the region's companies. tariq@anecdoted.com
The World Bank's October economic update for the Middle East, North Africa, Afghanistan and Pakistan projects a 2.1% contraction in regional output in 2026, a reversal from 3.3% growth last year. Conflict is weighing on hydrocarbon production, trade, tourism, aviation and logistics.
Should the fighting ease by the end of 2026, growth excluding Iran is forecast to rebound to 7.8% in 2027. That recovery rests mainly on restored hydrocarbon output and exports rather than any improvement in underlying productivity.
Gulf states absorb the heaviest losses
GCC economies are set to shrink 4.3% in 2026 after 4.5% growth in 2025, then expand 10.3% in 2027 as energy production and exports come back.
- Qatar: down 20.9% in 2026, up 26.7% in 2027 as LNG production resumes — the deepest fall and the strongest rebound in the bloc.
- Kuwait: -14.6% this year, +22% next year.
- Saudi Arabia: -2% in 2026, +7.9% in 2027.
- UAE: -1.6% then +9.5%.
- Bahrain: -2.9% this year, +4.2% next.
- Oman: +3.1% in 2026 and +3.4% in 2027, the only GCC economy expected to keep growing.
Export routes that bypass the Strait of Hormuz cushioned Oman and the UAE, the bank said. Saudi Arabia relied on its East-West Pipeline.
One chokepoint, outsized effects
Roughly 27% of oil traded globally and 20% of LNG exports normally move through the Strait of Hormuz. Gulf oil production dropped from about 26 million barrels per day before the conflict to some 16 million bpd in March. Lost export volumes have hurt Gulf economies more than higher energy prices have helped them.
North Africa holds up better
Egypt is forecast to grow 5.1% in fiscal 2026 and 4.3% in 2027. Morocco should expand 4.4% this year and 4% next. Algeria is put at 3.7% and 3.4%, helped by higher hydrocarbon prices and production; Tunisia at 2.3% and 2.2%; Libya at 1.4% this year, accelerating to 2.9% in 2027.
Developing oil-importing economies as a group are expected to grow 4.3% in 2026, up from 3.9% in 2025, before easing to 4% in 2027.
AI as a complement rather than a replacement
The same report found AI is more likely to supplement workers in the region than displace them in the near term. Fewer than 10% of jobs face near-term automation risk, while AI could lift productivity in 13% to 20% of jobs. Barriers remain: localization, usage, skills and infrastructure.
Arabic makes up under 1% of frontier-model training data, though more than 500 million people speak it. Saudi Arabia and the UAE are the only MENAAP economies in the global top 25 for both AI model development and high-performance computing capacity. The UAE climbed to eighth in Stanford's Global AI Vibrancy Index in 2024 from 32nd in 2017; Saudi Arabia rose to 19th from 33rd. Egypt is emerging as a regional AI market on the strength of its technical talent and digital ecosystem, though gaps in readiness and adoption persist. The report pointed to Egypt's recent AI deals as reason for optimism about the local economy.
