Gulf economies will not return to pre-war growth soon, IMF warns

The IMF’s warning means Gulf economies may recover from the immediate shock without regaining their old growth path soon. Growth could resume, but at a weaker level than before the war. This matters because lost output can affect jobs, investment, public finances, and living standards over time.

The key idea is economic “scarring.” War can damage infrastructure, interrupt business activity, and reduce confidence. Governments must then spend more to repair systems and strengthen them against future attacks. Those costs can divert money from development projects that would otherwise support faster growth.

The IMF expects the Middle East and Central Asia region to contract 0.3 percent in 2026. Saudi Arabia is projected to shrink 3.3 percent. IMF regional director Jihad Azour said the region would not return to its pre-war trajectory in the medium term, although the economies are expected to bounce back eventually.

The International Monetary Fund, or IMF, is an international financial institution that studies economies, advises governments, and supports economic stability. It publishes forecasts about growth, inflation, public finances, and other risks. Its regional assessments help decision-makers understand how major shocks may spread across countries.

A forecast does not determine what will happen, but it can influence choices. Governments may revise budgets, prepare emergency support, or prioritize infrastructure and resilience. Investors may reassess expected profits, borrowing risks, and the safety of projects. A weaker forecast can also affect confidence before all the economic damage appears in official data.

In this case, the IMF projects a 0.3 percent contraction for the Middle East and Central Asia region in 2026, with Saudi Arabia shrinking 3.3 percent. The warning comes from a major international institution while officials and experts discuss global headwinds, including stubbornly high energy costs.

The figures show a broad regional downturn with a much sharper shock in Saudi Arabia. A 0.3 percent contraction means the region’s total economic output is expected to be slightly smaller in 2026. Saudi Arabia’s projected 3.3 percent decline is more than ten times as large in percentage terms, making the kingdom a particularly severe case.

A recession means economic activity shrinks rather than grows. The article describes Saudi Arabia’s projected contraction as rare. That unusual result reflects the scale of the shock facing a kingdom that has long been buffered by robust energy exports. The forecast therefore signals more than an ordinary fluctuation in growth.

The IMF released these projections as the region faced direct exposure to the Iran war. IMF chief Kristalina Georgieva also warned that ongoing attacks targeting Saudi Arabia could affect people “everywhere.” The figures remain projections, but they show how conflict can turn a traditionally strong economy vulnerable to contraction.

Saudi Arabia is vulnerable because it is both directly targeted and economically central to a region exposed to the Iran war. Attacks create immediate risks for people, infrastructure, businesses, and public services. They can also make households and companies less confident about spending and investment.

The article links Saudi Arabia’s vulnerability to its economic structure as well. The kingdom has long been buffered by robust energy exports. When conflict threatens a country that depends heavily on this strength, damage or disruption can undermine one of its main economic supports. Security concerns can also force the government to redirect resources toward protection and recovery.

The IMF projects a 3.3 percent contraction for Saudi Arabia, compared with 0.3 percent for the Middle East and Central Asia region. IMF chief Kristalina Georgieva warned that ongoing attacks targeting Saudi Arabia could affect people “everywhere.” The forecast shows that energy wealth does not eliminate wartime economic risks.

When war damages infrastructure, an economy loses part of the machinery that allows people and businesses to work. Disrupted transport, energy systems, workplaces, or public services can delay production and trade. Businesses may close, reduce operations, or postpone investment. Workers and households can also face lost income and uncertainty.

Government spending then rises for repairs, security, and resilience. That spending may be necessary, but it can crowd out other priorities, such as education, health, or new development projects. Rebuilding also takes time. If companies lose customers, equipment, or confidence, the damage can continue after fighting eases. This is the “scarring” described by the IMF.

Jihad Azour said the shock would disrupt infrastructure and require additional spending to increase resilience. The IMF therefore does not expect a return to the pre-war growth trajectory in the medium term. Recovery may come, but output and investment can remain below their earlier path.

Oil and gas exports have traditionally buffered Gulf economies by providing a powerful source of national income. The article specifically says Saudi Arabia has long been supported by robust energy exports. That support can help governments and businesses absorb weaker conditions and sustain economic activity.

High energy costs can still create problems during conflict. They raise the cost of transport, production, and household energy use in many economies. Conflict can also increase uncertainty around supply, infrastructure, and trade. Even if exporters receive stronger revenues, governments may face larger security, repair, and resilience bills. Other sectors can suffer when costs rise and investment is delayed.

The article identifies stubbornly high energy costs as a headwind facing the global economy. It also warns that the Iran war is directly affecting the Middle East and Central Asia. Thus, energy strength may provide a cushion, but it cannot fully offset attacks, infrastructure disruption, and the broader costs of war.

Economic growth means an economy produces more goods and services over time. It can reflect stronger businesses, more productive workers, greater investment, or improved infrastructure. Growth matters because it can support jobs, incomes, public revenue, and development. A slowdown means growth weakens; a contraction means output falls.

A major shock can leave “scarring” when its effects damage the economy’s ability to grow later. Destroyed infrastructure may take years to replace. Businesses may lose equipment, markets, or confidence. Governments may need to spend more on security and resilience instead of projects that raise future productivity. These effects can lower the economy’s potential, not just its output for one year.

The IMF’s Jihad Azour said the war shock would affect various sectors, disrupt infrastructure, and require additional spending. The organisation expects Middle Eastern economies to bounce back, but not return to their pre-war trajectory in the medium term. That distinction captures the difference between recovery and full restoration.