The International Monetary Fund (IMF) has lowered its global growth forecast for 2026 to 3% from 3.1%, in an update reflecting the impact of geopolitical tensions and rising financing costs, despite support provided by a surge in investments in artificial intelligence and U.S. tax cuts that helped absorb the shock of global trade disruptions and the closure of the Strait of Hormuz.
In contrast, Saudi Arabia has emerged as the most cohesive economy, with the IMF raising its forecast for its economy growth to 5.5 percent for next year, a full percentage point higher than April's estimates, based on the expansion of non-oil activities, diversification of export paths, and the implementation of broad economic reforms that have strengthened the resilience of the Saudi economy in the face of regional turmoil.
The growth forecast for the Middle East and North Africa (MENA) region fell to a contraction cycle of 0.5 percent, a direct reflection of the effects of regional crises and rising financing costs, highlighting the growing gap between the most resilient economies, led by Saudi Arabia, and the region's economies facing mounting pressures.
Middle East economy shrinks
The International Monetary Fund (IMF) has forecast that the MENA economy will contract by 0.5% in 2026, a sharp decline from Nissan's estimate of positive growth of 1.1%.
Experts said the significant cut, of 1.6 percentage points, reflects the extent of the pressures on the region's economies as a result of continued geopolitical tensions, navigation and energy disruptions linked to the closure of the Strait of Hormuz, as well as the extension of oil production cuts that have reduced the financial returns of producing countries.
Despite the bleak outlook in 2026, the IMF predicted a record recovery jump of 7.3 percent, the highest rate recorded in the region in more than 23 years, based on the hypothesis of a diplomatic breakthrough in the regional conflict and the gradual reopening of vital waterways, especially the Strait of Hormuz, to restore the flow of trade and energy to normal levels.
An unexpected paradox
The report revealed a clear disparity in the performance of the region's economies, with the IMF forecasting the Saudi economy to grow by 1.7% in 2026 and 5.5% in 2027, taking advantage of alternative logistics networks and drawdowns from oil stockpiles to overcome supply disruptions.
The IMF said that the Egyptian economy is resilient and will raise its growth forecast to 4.6% in 2026 thanks to ongoing structural reforms, while countries such as Iraq, Kuwait, and Qatar are facing severe contractions as a result of their direct impact on energy production disruptions and shipping difficulties.
The IMF based its forecast on a set of main assumptions, most notably the gradual reopening of the Strait of Hormuz in mid-July 2026, the stabilization of oil prices at an average of $89 per barrel supported by the de-escalation agreements, in addition to the IMF's warning that the strategic oil reserves that some countries have resorted to using are on the verge of depletion, making the region more vulnerable to any new escalation.
Warnings about the risks of interest rate cuts
The IMF called for a more disciplined economic path to avoid a global recession through a combination of monetary and fiscal policies and structural reforms aimed at addressing the root causes of the economic slowdown, not just its manifestations.
The IMF stressed that interest rates should be very cautious so that it does not become a new catalyst for inflation to return, but rather a tool to ensure a safe and disciplined landing for economies facing increasing pressure from higher financing costs and market tensions.
The IMF considered that fiscal consolidation has become a necessity rather than an option, calling on governments to reduce deficits and rebuild fiscal reserves, in a way that restores confidence in the ability of countries to face future shocks, and gives them a wider margin to act in the event of sudden disruptions in markets or supply chains, reaffirming that this strict fiscal path is the main guarantee to prevent debt accumulation and avoid economies from moving into a fragile phase from which it is difficult to get out.
Investment in technology, artificial intelligence and green transformation is no longer a development option but a necessity to compensate for the growing shortage of manpower, and to enhance the ability of economies to create higher added value in the industrial and service sectors, stressing that digital and environmental transformation is the most effective way to raise the efficiency of economies and mitigate the effects of the global slowdown.
Comments (0)