MENA Economy to Contract 2.0% in 2026: What It Means for Your Money

The International Monetary Fund (IMF) has sharply revised its economic growth forecasts for the Middle East and North Africa (MENA) region, now projecting a 2.0 percent contraction in 2026 (Arabianbusiness). This significant downgrade, announced in its October 2026 World Economic Outlook report, means your investments and business outlook in the region could face considerable headwinds next year.

Why the outlook has soured for 2026

The primary driver behind this gloomy forecast is the continued closure of the Strait of Hormuz and the protracted Iran war, which some reports refer to as the US-Israel war on Iran (Al Jazeera). This vital chokepoint, normally responsible for a fifth of global oil supplies, has been severely disrupted, directly impacting energy production, trade, and crucial shipping routes (OilPrice.com). You can read more about the impact of these disruptions here.

The IMF's latest projection for MENA's 2026 contraction is a substantial 3.1 percentage point reduction from its April forecast and a 1.5 percentage point cut from its July projections (Arabianbusiness). While the global economy is showing resilience, partly due to strong AI investments and productivity gains, the Middle East is grappling with a severe energy shock (Afp).

Who is most affected by the slowdown?

Commodity-producing economies in the Gulf are bearing the brunt of these disruptions. Countries like Bahrain, Iraq, Kuwait, and Qatar are projected to experience double-digit contractions in 2026 (Arabianbusiness). Bahrain is set to shrink by 11.3 percent, Iraq by 16 percent, Kuwait by 16.7 percent, and Qatar by 15.6 percent (Arabianbusiness). Iran is also forecast to contract by 7.6 percent (Arabianbusiness). The challenges for Iraq's oil exports have been a recurring theme for some time.

Even larger economies like Saudi Arabia and the United Arab Emirates face significant revisions. Saudi Arabia is now projected to contract by 3.3 percent in 2026 (Saudigazette.com). This is a stark reversal from previous IMF forecasts, which had anticipated positive growth for Saudi Arabia in 2026, such as 3.1 percent in April and 1.7 percent in July (Argaam). The UAE is expected to contract by 3.9 percent in 2026, a substantial 7 percentage point downgrade from its April forecast (Arabianbusiness, Gulfnews). However, Saudi Arabia's more diversified energy export routes, including the East-West pipeline, offer some protection from the Strait of Hormuz closure compared to its neighbours (OilPrice.com).

Energy-importing economies such as Jordan and Egypt also face pressures. Elevated energy input costs, maritime trade bottlenecks, and regional conflicts are straining their external sectors (Petra.gov, Ahram.org). Despite these challenges, import-intensive emerging markets like Jordan are expected to maintain steady growth, with projections of 2.7 percent for 2026 and 3.1 percent for 2027 (Petra.gov). Egypt's real GDP growth is projected at 5.1 percent for fiscal year 2025/26, slightly easing to 4.7 percent for 2026/27 (Ahram.org). Morocco also shows resilience, with real GDP growth projected at 4.4 percent for 2026 (Arabianbusiness).

What to expect in 2027 and beyond

Despite the grim near-term outlook, the IMF anticipates a robust rebound for the region in 2027. The MENA economy is projected to grow by 7.0 percent in 2027 (Arabianbusiness). This optimistic forecast is largely contingent on a normalisation of trade and energy flows. The IMF's baseline scenario assumes the Strait of Hormuz will begin reopening in March 2027, with conditions broadly returning to pre-war levels by October 2027 (Afp).

The UAE, in particular, is looking towards a strong recovery, with its economy projected to grow by 7.7 percent in 2027 (Gulfnews). Abdulla Bin Touq Al Marri, the UAE Minister of Economy and Tourism, described 2027 as a "counter-attack year" for the UAE economy, anticipating a "huge rebound" (Gulfnews). Saudi Arabia is also forecast for strong growth of 7.9 percent in 2027 (Saudigazette.com).

Here are the key growth projections for the MENA region:

• MENA Region: -2.0 percent in 2026, 7.0 percent in 2027 (Arabianbusiness)
• Saudi Arabia: -3.3 percent in 2026, 7.9 percent in 2027 (Saudigazette.com)
• UAE: -3.9 percent in 2026, 7.7 percent in 2027 (Gulfnews)
• Iraq: -16.0 percent in 2026 (Arabianbusiness)
• Kuwait: -16.7 percent in 2026 (Arabianbusiness)
• Qatar: -15.6 percent in 2026 (Arabianbusiness)
• Bahrain: -11.3 percent in 2026 (Arabianbusiness)
• Iran: -7.6 percent in 2026 (Arabianbusiness)
• Morocco: 4.4 percent in 2026, 4.5 percent in 2027 (Arabianbusiness)
• Egypt (FY): 5.1 percent in 2025/26, 4.7 percent in 2026/27 (Ahram.org)
• Jordan: 2.7 percent in 2026, 3.1 percent in 2027 (Petra.gov)

What this means for your money and business

For households, the ongoing conflict is pushing up energy and food prices, contributing to higher inflation across the region (Afp). Businesses face increased uncertainty, lower investment, higher financing costs, and disruptions to shipping and production (Afp). Public finances are also under pressure, with countries like Jordan and Egypt facing widening current account deficits (Petra.gov, Ahram.org). The IMF recommends rebuilding fiscal buffers to address these challenges (Afp).

Investors should be aware that heightened uncertainty and significant downside risks to growth could impact confidence in the region (Afp). However, there are some areas seeing increased activity; Jordan's Port of Aqaba, for example, is expected to benefit from higher regional demand as countries seek alternative transportation and logistics routes (Petra.gov).

The bottom line

The Middle East and North Africa region faces a challenging 2026, with the IMF projecting a 2.0 percent economic contraction due to ongoing conflicts and trade disruptions. While the short-term outlook is tough for many Gulf economies, a strong rebound is anticipated for 2027, assuming a normalisation of the Strait of Hormuz and regional stability. This means businesses and investors should brace for headwinds next year, but keep an eye on the potential for recovery in the subsequent year.

This article is for information only and is not financial advice.