IMF now sees MENA economy contracting 0.5%

The IMF marginally trimmed its 2026 global growth forecast to 3.0%, down from 3.1% in April, in its latest economic outlook report (pdf) — but MENA saw a much sharper downgrade. The region is now expected to contract by 0.5% this year, a 1.6-percentage-point downward revision and the single largest cut of any grouping in the entire report. 2027 projections tell the opposite story on both counts: global growth rebounds to 3.4%, and MENA sees the most aggressive growth of all at 7.3%.

That’s despite Egypt and Saudi Arabia’s expected growth this year. Egypt is seen growing 4.6%, an upward revision of 0.4 percentage points from April’s forecast. Meanwhile, Saudi Arabia is seen growing 1.7% for 2026 — though that’s still a sharp 1.4-percentage-point cut from April — on the back of more diversified export routes than Iraq, Kuwait, and Qatar.

Behind the downgrade: Iraq, Kuwait, and Qatar — the producers most exposed to the war’s disruption of energy output, transport, and the Strait of Hormuz — are projected to contract sharply this year, before seeing “double-digit expansions” in 2027 once exports normalize.

The IMF frames 2026 as two opposing forces — a negative supply shock from the Middle East war and a positive demand shock from the global AI and technology investment cycle. Globally, the two are roughly offsetting each other, which is why the world number only slipped a tenth of a point. But the offset isn’t evenly distributed. Economies plugged into AI-related trade and manufacturing are seeing upgrades even when they’re energy importers. On the other hand, economies directly exposed to the war and not plugged into that tech cycle are seeing some of the sharpest cuts in the entire report.

The oil math behind the downgrade got more expensive, not cheaper. The Fund’s reference forecast assumes crude averages USD 89.27 a barrel in 2026 — 9% above the roughly USD 82 it assumed in April — before easing to USD 78.70 in 2027. The whole forecast rests on the Strait of Hormuz beginning to reopen this month and returning to pre-war conditions by March 2027. The IMF itself frames the risks around that timeline as more balanced than in April, but still tilted to the downside.

BACKGROUND- We flagged the fragility behind this exact picture a day before the IMF’s numbers landed. Oxford Economics had the global second-half acceleration at 3.1% annualized, contingent entirely on the US-Iran truce holding, and put the odds of that truce surviving at 50-50.

THE CLOSING BELL-

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