The economies of the Middle East are set to maintain steady growth this year, in line with global trends, but geopolitical risks and trade disruptions remain, the International Monetary Fund has said.
In the broader Middle East and Central Asia region, aggregate growth is projected to rise to 3.9 per cent in 2026, an 0.1 percentage point increase from the fund’s October forecast, the IMF said its latest World Economic Outlook report on Monday. Aggregate gross domestic product growth is expected to reach 4 per cent in 2027.
Saudi Arabia, the Arab world’s largest economy, will lead the regional growth, expanding 3.9 per cent and 4 per cent this year and next, up 0.1 and 0.2 percentage points, respectively, from the IMF’s October estimates.
The expansion of economic activity in the Middle East is “supported by higher oil output, resilient local demand, and ongoing reforms”, but the risks to the regional as well as global economic outlook remain tilted to the downside, the Washington-based fund said.
“A significant escalation in geopolitical tensions, particularly in the Middle East or Ukraine but possibly also in Asia and Latin America, could trigger substantial negative supply shocks,” the IMF said.
“Disruption to major shipping routes, critical supply chains, and air travel could occur, leading to delays and increased costs. If key infrastructure were damaged, resulting supply constraints could drive commodity prices higher,” the multilateral lender added.
Global Growth
The IMF expects global growth to remain steady this year, mimicking its 2025 performance despite significant US-led trade disruptions and heightened uncertainty.
The fund’s latest projections indicate that global growth will hold steady at 3.3 per cent this year, an upward revision of 0.2 percentage points compared to October estimates, with most of the improvement accounted for by the US-China tariff truce.
“This surprising strength reflects a confluence of factors, including easing trade tensions, higher-than-expected fiscal stimulus, accommodative financial conditions, the agility of the private sector in mitigating trade disruptions and improved policy frameworks, especially in emerging market economies,” Tobias Adrian, director of IMF’s Monetary and Capital Markets Department and the fund’s chief economist Pierre-Olivier Gourinchas said in a blog post on Monday.
AI conundrum
Another key driver of resilient economic performance is the continued surge in investment in artificial intelligence. While manufacturing activity remains subdued, IT investment as a share of US economic output has surged to the highest level since 2001, providing a major boost to overall business investment and activity, IMF officials said.
“Although this IT surge has been concentrated in the US, it is also generating positive spillovers globally, most notably to Asia’s technology exports,” they said.
While the current tech boom raises upside potential if it continues, it also presents risks for the global economy.
“Should expectations about AI-driven productivity gains turn out to be overly optimistic and outcomes disappoint, a sharp drop in real investment in the high-tech sector as well as in spending on AI adoption in other sectors and a more prolonged correction in stock market valuations – which have increasingly been lifted by only a few technology firms – could ensue,” the IMF said.
“Spillovers would spread, directly through trade flows, to export-oriented economies specialising in technology products. These would radiate to the rest of the world through the tightening of global financial conditions.”
Fiscal policy calibration
The rebuilding of fiscal capacity and maintaining public debt sustainability are crucial going ahead amid mounting piles of global debt and spending needs faced by nations across the world, the IMF said.
At a minimum, countries must make a “commitment to credible medium-term fiscal consolidation” and should anchor their efforts to rebuild fiscal with “realistic assumptions”.
“Central banks must tailor monetary policy to uphold price stability amid ongoing shifts in the global economic landscape," the report said.
