At a time when the global economy is struggling to avoid a sharp recession, the International Monetary Fund’s updated World Economic Outlook showed a deeply divided picture. A surge in artificial intelligence investment, productivity gains and US tax cuts helped keep global growth at 3% this year, slightly below the 3.1% forecast in April, absorbing part of the severe energy shock caused by the Iran war and the closure of the Strait of Hormuz. But the regional cost was steep and unprecedented. The prolonged closure of the Gulf shipping artery prompted the IMF to sharply downgrade its outlook for the Middle East and North Africa, pushing the region into a 0.5% contraction, one of its worst annual performances since the start of the century. Major oil producers were caught between lower output and disrupted supply logistics. At the center of the turmoil, Saudi Arabia emerged as one of the most resilient economies. Although the IMF cut its growth forecast for the Kingdom this year to 1.7%, it raised its projection for next year to 5.5%, defying the darker regional scenario. The Kingdom was supported by alternative routes that protected its momentum, while major producers such as Iraq, Kuwait and Qatar face temporary contractions before a broad regional rebound in 2027. Recent military developments delivered a severe logistics shock that paralyzed flows equivalent to one-fifth of global oil and gas. Although releases from strategic oil reserves and commercial production eased the crisis, prices remained 25% to 32% above pre-war levels. The jump in energy costs directly froze two years of global progress against inflation. The IMF raised its global inflation forecast by 0.3 percentage point to 4.7% in 2026, saying the monetary easing cycle had seen a “temporary pause, not a break in the broader trend.” Regional growth map The IMF’s new baseline scenario assumes the Strait of Hormuz will begin reopening gradually in mid-July and return to normal by March 2027. The prolonged closure redrew the region’s growth map as follows: The Middle East and North Africa region is expected to contract. The IMF cut its 2026 estimate for the region for the second time in three months, forecasting a 0.5% contraction, down from 1.1% growth in its April update. That would make it the only region in the world expected to record a decline in gross domestic product, before a strong rebound in 2027 as exports recover and trade through the Strait of Hormuz returns to pre-war levels. Deniz Igan, head of the IMF’s research department, described the expected recovery as “V-shaped”. Iraq, Kuwait and Qatar, among the commodity exporters most affected by transport disruptions and energy production constraints, are expected to face sharp, painful contractions this year, followed by a surge in expansion and double-digit growth in 2027. Türkiye is also under pressure. The IMF cut its 2026 growth forecast for Türkiye for the second time this year to 2.9%, down from 3.4% in April, under pressure from weak domestic demand, higher energy prices and tighter financial conditions. Iran, despite resilient oil exports early in the year and an upward revision to its forecast, remains weighed down by sanctions and war. Its economy is expected to contract sharply by 5.4% in 2026, pending the broader regional rebound in 2027. Saudi resilience At the center of the regional disruption, Saudi Arabia’s official indicators appeared more resilient. The IMF said the Saudi economy was “less affected” by the shock than its Gulf neighbors. The Fund’s revisions to Saudi figures reflected recent geopolitical developments compared with its April report, lowering its 2026 growth forecast for the Kingdom by 1.2 percentage points to 1.7% this year. By contrast, the outlook carried a more optimistic revision for 2027. The IMF raised its forecast for Saudi Arabia's growth by 1 percentage point from its April estimate, projecting growth of 5.5% as tensions ease and waterways reopen. US and China hold up, Europe bears the cost The IMF’s documentation showed a stark divergence among major powers, depending on their exposure to the technology boom and energy sources. The United States stood apart. The world’s largest economy retained its strength, with its growth forecast steady at 2.3% in 2026. It was supported by a dual boost from massive investment in artificial intelligence, the effects of President Donald Trump’s 2025 tax cuts and strong stock markets. China, the world’s second-largest economy, received a slight upward revision and is now expected to grow by 4.6%. Despite its property-sector crisis and the energy shock, Beijing was supported by public works spending, booming exports and a surge in high-tech manufacturing. Asia seized the technology opportunity. The four major exporters of AI equipment and hardware — Taiwan, South Korea, Thailand and Malaysia — recorded strong and resilient growth, reflecting gains from the surge in technology demand. Europe paid the price. The 21 eurozone countries were directly hit by rising prices, with their collective growth forecast falling to just 0.9%. France’s forecast retreated to only 0.6%, reflecting its direct exposure to the energy shock. Conflict risks remain Although the global economy proved more resilient than feared, the IMF ended its report with a sharp warning. Igan said renewed military conflict and the latest strikes between the United States and Iran in recent hours could leave the global economy in a “much worse position.” The Fund warned that the depletion of countries’ strategic oil reserves would quickly narrow their room for maneuver, opening the door to sharp swings in commodity prices, disruption in global trade flows, or a sudden and painful correction in overblown expectations for technology and artificial intelligence markets.
