IMF expects regional economy to fall 1.3% due to war against Iran — Dawn

The International Monetary Fund, in a regional outlook released in Dubai, United Arab Emirates, forecasts a 1.3% contraction in economic output in Pakistan and the countries of the Middle East and North Africa in 2026. The fund links this forecast to the consequences of the war against Iran, which the source describes as led by the United States and Israel.

As Dawn reports, the forecast was affected by disruptions in energy production, shipping, tourism and trade, as well as worsening economic sentiment. The IMF expects economic output in these countries to recover and grow by 6.6% in 2027, but to remain below pre-war forecasts overall.

Uneven impact

According to the IMF, the consequences of the conflict for the region's economies are significant but uneven. Oil-exporting countries experienced a stronger impact due to disruptions in energy production and maritime transport. Oil importers proved more resilient thanks to domestic demand, remittances, tourist flows, favorable financial conditions and measures by authorities to protect consumers from rising commodity prices.

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Baseline forecast conditions

The IMF's baseline scenario assumes that the conflict will begin to subside in early 2027 and that trade will gradually normalize throughout the year. At the same time, the fund warned of exceptionally high uncertainty: further disruptions in energy production and trade routes could raise energy prices.

The IMF also allows for tighter external financial conditions if investors revise their estimates of productivity gains from artificial intelligence and interest rates rise due to concerns about inflation and public finances. The fund called on policymakers to maintain price stability and fiscal sustainability, support central bank independence, and implement structural reforms to boost productivity and create jobs.