IMF downgrades MENA growth as Hormuz disruption chokes Gulf energy output

The IMF thinks MENA+ is heading for its sharpest downturn in years, projecting a 0.5% contraction in 2026 in its July World Economic Outlook Update (pdf). This marks a 1.6 percentage point downward revision from its April forecast and a dramatic reversal from the 3.3% growth recorded in 2025. The broader Middle East and Central Asia grouping fares only marginally better, slowing to 0.7% growth — a 1.2 pp downgrade.

The updated forecasts reflect expectations that the Hormuz is likely facing a longer shutdown than the Fund anticipated in April, which will continue to choke energy output and transport across the Gulf. With that deeper downgrade comes a larger comeback: The updated outlook pencils in 7.3% growth in MENA in 2027 (revised up 2.5 points) and 6.5% for the Middle East and Central Asia (up 1.9 points).

A lasting theme is how uneven the pain is within the region: Iraq, Kuwait, and Qatar — the commodity producers most exposed to disrupted energy output and transport — face sharp contractions this year before double-digit expansions in 2027 as flows normalize. Saudi Arabia, cushioned by more diversified export routes, holds up considerably better, with 1.7% growth this year (slowing from 4.6% in 2025 and reflecting a 1.4 percentage point downgrade from April). Riyadh’s GDP is expected to grow at a 5.5% clip in 2027. Iran remains mired in recession at a 5.4% contraction, though its forecast was nudged up 0.7 pp on a better oil-export outturn in March and April. Egypt stands out as a relative bright spot at 4.6% growth — with that figure actually revised up 0.4 pp — as commodity importers across MENA+ weather the terms-of-trade shock from higher energy and food prices better than feared.

Behind all of this sits the oil market: Average crude prices are projected to jump 31.8% in 2025 before falling back 11.8% in 2027. That swing will punish importers and, paradoxically, even Gulf exporters whose barrels can’t reach the market. The IMF cautions that oil inventories, drawn down to cushion the shock, are nearing multiyear lows, leaving prices vulnerable to nonlinear spikes.

This regional picture unfolds against a subdued but resilient global backdrop. World growth is set to ease to 3.0% in 2026 before recovering to 3.4% in 2027. Global headline inflation is set to tick up to 4.7% in 2026, reversing the disinflation trend in place since early 2024. The drag from the Middle East war is being partly offset by a demand-driven boom in the global technology cycle, as advances in AI lift chipmakers and tech-integrated economies — even energy importers like Korea — while economies plugged into neither cheap energy nor the AI upswing, including many low-income countries, fall further behind.

In other economy news

Oman saw its GDP growing 2.6% in real terms in 1Q 2026 as oil and gas activity rose 4.6% y-o-y, according to the National Center for Statistics and Information.

Dubai’s GDP rose 2.4% y-o-y in 1Q 2026, buoyed by wholesale and retail trade, which accounted for 22% of GDP and grew 2.6% y-o-y, according to Dubai Media Office.