Geopolitical uncertainty is the biggest threat to the global economy, amid conflicts in the Middle East and Europe, which far outweighs concerns over asset bubbles and trade turmoil, according to a World Economic Forum survey.
The war in the Middle East, now in its seventh month, is of a particular concern and could create serious economic headwinds over the next 12 months, with Iran continuing to hit commercial vessels in the Strait of Hormuz, said 97 per cent of chief economists surveyed by the WEF.
In late August alone, Tehran threatened 46 commercial ships transiting the narrow waterway, which is normally the route for about a fifth of global oil and gas supply. The number of vessels crossing the strait has fallen to among its lowest levels since the conflict began and this could have direct consequences for the global economy, WEF said in its September Chief Economists' Outlook on Tuesday.
Escalating attacks by Ukraine and the Russia on Black Sea ports and shipping operations could also choke off seaborne grain exports from two of the world’s largest suppliers and reduce global cereal exports by as much as 17 per cent this year.
Direct side-effects of geopolitical conflicts, especially the reverberation of the US-Iran war through global energy and commodities trade and commerce, are far more pronounced than any other potential threat to economic growth.
Asset price correction was underpinned by 58 per cent, while trade and investment restrictions were listed by 42 per cent of the surveyed economists as the biggest threat. War-driven energy shocks were cited by 39 per cent of respondents, while supply chain disruptions came in at 17 per cent.
Against the odds
While the broader Middle East and North Africa region is still among the most vulnerable areas in terms of its capacity to withstand future shocks, the outlook for Mena economics has improved from WEF’s May survey of economists.
About 57 per cent of chief economists now expect “moderate or stronger growth over the next 12 months, compared with only 12 per cent anticipating moderate growth in May – although 42 per cent still expect weak growth”, according to the latest report.
The US-Iran conflict, which began on February 28, led to waves of drone and missile strikes on Iran's Arab neighbours and the closure of the Strait of Hormuz.
Hospitality, aviation and tourism were among the worst hit sectors as Iran attacked industrial, energy and civilian infrastructure across the region.
Despite several rounds of mediated negotiations, the US and Iran have failed to reach a peace deal or a mechanism to open the strait.
The International Monetary Fund has cut its 2026 growth forecast for the Middle East to 0.7 per cent, a 1.2 percentage point downgrade from April, due to the fallout from closure of Hormuz for regional energy exports.
In its World Economic Outlook, published in July, the fund said it expects growth to rebound to 6.5 per cent in 2027, an increase of 1.9 percentage points from its previous assessment.
Reflection
The WEF said the 4.8 per cent contraction of Saudi Arabia’s economy in the second quarter of this year “illustrates the continuing economic effects of regional disruption”, as oil activity declined by 24.7 per cent, while non-oil activity increased only by 0.9 per cent.
It expects growth in Saudi Arabia to hit 1.7 per cent in 2026. Iran’s economy is projected to contract by 5.4 per cent this year.
“On unemployment, 63 per cent of respondents expect no change, while 22 per cent anticipate an increase. The improved survey outlook therefore points towards expectations of stabilisation rather than a full reversal of the economic effects of the conflict,” the report said.
Expectations of inflation have also moderated significantly in the Middle East since the May survey.
About 62 per cent of respondents expect moderate inflation, and 27 per cent expect high or very high inflation over the next 12 months, compared with 55 per cent expecting high or very high inflation in May.
“Price pressures remain highly uneven across the region,” the WEF report said. “Consumer prices fell by 0.6 per cent year-on-year in Morocco in July. By contrast, Iran recorded point-to-point inflation of 84.4 per cent in August.”
The “wide divergence” reflects uneven effects of the regional pressures across economies, the WEF.
“The broader outlook remains sensitive to disruptions in energy production and transport flows,” the report added.
