IMF Forecasts 1.3% Economic Contraction Across Middle East, North Africa and Pakistan

For context, the International Monetary Fund (IMF) expects economic output throughout the Middle East, North Africa and Pakistan to contract by 1.3 percent in 2026 as the US and Israeli led war against Iran disrupts energy production, shipping, tourism and trade.

Key points

• The fund forecasts a sharp recovery in 2027, with regional output projected to grow by 6.6 percent.
• The IMF expects the region's economy to rebound in 2027, but remarked output in affected economies would generally remain below levels projected before the war.
• In its regional economic outlook published in Dubai on Thursday, the IMF stated the conflict had affected economies unevenly.
• The fund cautioned that the outlook remained subject to exceptionally high uncertainty.
• The IMF additionally cautioned that investor reassessments of artificial intelligence driven productivity gains could affect financial conditions.

Meanwhile, the fund forecasts a sharp recovery in 2027, with regional output projected to grow by 6.6 percent.

In its regional economic outlook published in Dubai on Thursday, the IMF stated the conflict had affected economies unevenly. While oil importing economies have proved more resilient, oil exporting countries have faced greater pressure from disruptions to energy production and shipping.

Notably, the IMF expects the region's economy to rebound in 2027, but remarked output in affected economies would generally remain below levels projected before the war. Its baseline forecast assumes the conflict will ease in early 2027 and trade will gradually return to normal over the course of the year. Pakistan's Inflation to Rise Further Next Year. IMF Warns Energy Disruptions Could Worsen Outlook.

Meanwhile, the fund cautioned that the outlook remained subject to exceptionally high uncertainty. While tighter external financial conditions could add to economic pressure, further disruptions to energy production and trade routes could push energy rates higher.

For context, the IMF additionally cautioned that investor reassessments of artificial intelligence driven productivity gains could affect financial conditions. Higher interest rates, alongside reservations concerning inflation and administration finances, could further complicate the outlook.

Oil importing economies have shown greater resilience, backed by domestic demand, remittances, tourism receipts, favorable financial conditions and policy measures designed to shield consumers from higher commodity costs, the IMF noted.

Meanwhile, the IMF forecast economic output expansion of 5.2 percent in the Caucasus and Central Asia in 2026, slowing to 5 percent in 2027 as expansion moves toward a more sustainable pace.

Meanwhile, the fund pressed policymakers to prioritize rate stability while maintaining sustainable public finances and central bank independence. It additionally called on structural reforms to raise productivity and create jobs as governments respond to the economic effects of the conflict. Stay Connected with ProPakistani.

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Taken together, the developments around IMF Forecasts 1.3% Economic Contraction Across Middle East, North Africa and Pakistan point to a situation that is still moving, and the coming days should bring more clarity.