IMF Projects 1.3% Economic Contraction For Middle East, North Africa And Pakistan In 2026
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✧ GENERATE BRIEFING
The International Monetary Fund (IMF) released its Regional Economic Outlook on Thursday, October 22, 2026, projecting a 1.3% economic contraction in 2026 across the Middle East, North Africa, and Pakistan (MENAP) region. The sharp deceleration—reversing a 3.3% expansion in 2025—stems directly from Middle East conflict escalation, shipping choke-point blockades, and volatile global energy supply lines. Key macroeconomic insights, regional divergence factors, and policy recommendations include:Divergent Impact Across Oil Exporters vs. Importers: Oil-exporting nations in the Gulf and wider region bear the main operational burden due to energy infrastructure disruptions and maritime transport constraints. Conversely, oil-importing economies (including Pakistan) have demonstrated relative resilience, buffered by strong worker remittance inflows, tourism receipts, and domestic commodity price stabilization measures.2027 Baseline Recovery Projection: The Fund projects a 6.6% regional GDP rebound in 2027, premised on the core assumption that military conflict abates in early 2027 and regional supply chains normalize. However, absolute economic output will remain below pre-war trendlines.
The International Monetary Fund (IMF) has projected a 1.3% contraction in economic output across the Middle East, North Africa and Pakistan in 2026, citing the impact of the war involving the United States, Israel and Iran on energy production, shipping, tourism and trade.
The forecast, released in the Fund’s regional economic outlook on Thursday, October 22, marks a sharp reversal from the region’s 3.3% growth in 2025. The IMF expects economic output to rebound by 6.6% in 2027, provided the conflict eases and trade gradually returns to normal.
Uneven Regional Shock and Oil Importer Resilience
The Fund cautioned that the economic shock has affected countries unevenly. Oil-exporting economies exposed to disruptions in energy production and shipping have faced greater pressure, while oil-importing countries have demonstrated comparatively stronger resilience.
Oil-importing economies have benefited from domestic demand supported by remittances and tourism receipts, alongside favourable financial conditions and policy measures intended to shield consumers from higher commodity prices.
| Economic Scenario | 2025 Real GDP | 2026 Projected Real GDP | 2027 Projected Rebound |
| MENAP Baseline | +3.3% | -1.3% | +6.6% |
| Adverse Extended War Scenario | — | -3.8% (Exporters) | Crude Average $130/bbl |
Supply Chain Risks and Inflationary Headwinds
According to the IMF’s baseline scenario, the conflict is expected to ease in early 2027, allowing trade to normalise progressively during the year. However, the Fund warned that the outlook remains subject to exceptionally high uncertainty and that renewed disruptions could deepen the economic impact.
Further interruptions to energy production and major shipping routes could push energy prices significantly higher, adding cost pressure to businesses, consumers and governments. The IMF also highlighted the risk of tighter external financial conditions amid concerns about inflation, interest rates and fiscal positions.
Output Gaps and Structural Policy Advice
Despite the projected 6.6% recovery in 2027, the IMF warned that overall economic output in affected economies would generally remain below levels anticipated before the conflict. This suggests that a recovery in annual growth would not necessarily reverse the underlying economic losses caused by the disruption.
The Fund urged regional policymakers to prioritize price stability, maintain fiscal sustainability, preserve central bank independence and introduce structural reforms aimed at improving productivity and creating employment.
The forecast covers the broader Middle East, North Africa and Pakistan region. The projected 1.3% contraction is a aggregate regional estimate and should not be interpreted as a forecast that Pakistan’s domestic economy alone will shrink by the same percentage.
