DUBAI: The International Monetary Fund (IMF) forecast Thursday that economic output in the Middle East, North Africa and Pakistan will contract sharply this year because of the U.S.-Israeli-led war against Iran, followed by a rebound to 6.6% growth in 2027.
The IMF said the region's output was expected to shrink 1.3% as a result of the war's impact on energy production, shipping, tourism, trade and confidence. Output would increase sharply in 2027, but economies in the region would generally stay below pre-war projections, the fund said in its regional outlook released in Dubai.
The war's impact has been substantial but uneven. Oil-exporting economies directly affected by disruptions to energy production and shipping were hit harder, while oil importers proved more resilient, the IMF said.
The IMF's baseline assumes the conflict will abate in early 2027 and trade will gradually normalize during the year, but it said the outlook remains clouded by "exceptionally high uncertainty."
"The main risks derive from further disruption to energy production and trade routes that could drive energy prices higher," the IMF said, noting that external financial conditions could also tighten.
Those conditions could tighten if investors reassess AI-driven productivity gains and interest rates rise further amid heightened concerns about inflation and fiscal positions, the fund said.
Oil importers have proven more resilient, with domestic demand supported by remittances and tourism flows, favorable financial conditions and prompt policy responses that shield consumers from higher commodity prices, according to the IMF.
Growth in the Caucasus and Central Asia is moderating toward a more sustainable pace, the IMF said, forecasting a 5.2% rise in economic output in 2026 and 5% in 2027.
The IMF reiterated the message it delivered during last week's annual meetings, urging policymakers to prioritize maintaining price stability while preserving fiscal sustainability, maintaining central bank independence and enacting structural reforms to boost productivity and create jobs.
