The IMF Forecasts a Contraction in the Middle Eastern Economy This Year and a Faster Recovery in 2027

SadaNews - The International Monetary Fund (IMF) has predicted that the economies of the Middle East and North Africa will record their second worst annual performance this year since the beginning of this century, before achieving strong growth in 2027 with the recovery of oil exports and the return of trade routes through the Strait of Hormuz to their pre-Iran War levels.

The IMF lowered its estimates for the region's economy in 2026 for the second time in three months, forecasting a contraction of 0.5% compared to a growth rate of 1.1% in its April updates on global economic prospects. This makes it the only region in the world expected to record a decline in GDP among the geographical areas and economic groups monitored by the international institution.

The total revisions made by the IMF to the region's GDP since last October amount to 4.2 percentage points. This supports the narrative that views the war as the most severe shock to the Middle Eastern economies among all the geopolitical crises that have shaken the region for decades, as historical data from the IMF indicates that no annual contraction has been recorded since at least 2000, except for the COVID-19 pandemic.

A Faster Growth Rate in 2027

However, the IMF raised its estimates for the region's economic growth for the coming year to 7.3%, the fastest pace since 2004 according to its historical data. This reflects its optimism regarding the recovery of oil production in Gulf countries, with forecasts suggesting that the Saudi economy will achieve a growth of 5.5% in 2027, an increase of a full percentage point from the April report.

In 2026, IMF experts expect the largest Arab economy to record a growth rate of 1.7%, compared to about 2% according to the assessment of the international institution's mission to the Kingdom announced by the IMF on June 3. The report added that the impact of the war on the Saudi economy this year "is somewhat lesser due to the diversification of export routes," while it expects countries like Iraq, Qatar, and Kuwait to suffer from sharp contractions.

Reduction in Global Growth Expectations

Globally, the IMF has lowered its expectations for global economic growth in 2026 to 3%, compared to 3.1% in its April estimates, while raising its growth forecast for 2027 to 3.4%, an increase of 0.2 percentage points. These revisions indicate continued pressures on economic activity during the coming year, against the backdrop of improved medium-term prospects.

The updates also showed a shift in price expectations, as the IMF raised its global inflation estimate to 4.7% in 2026, before falling to 3.9% in the next year, reflecting upward revisions for both years compared to previous estimates, indicating that inflationary pressures are expected to persist longer than anticipated.

In terms of energy markets, the international institution raised its forecasts for average oil prices to $89.3 per barrel in 2026, an increase of over seven dollars compared to its April estimates. It also raised the expected average price for 2027 to $78.7 per barrel, an increase of $2.73, indicating continued expectations of rising energy prices compared to previous estimates.