IMF sees Iran’s economy contracting 6.1% in 2026 on conflict shock, sharp downgrade

Iran’s economy is expected to contract sharply in 2026 before rebounding in 2027, as the impact of regional conflict disrupts production and trade flows, the International Monetary Fund (IMF) said on Tuesday.

According to its latest World Economic Outlook, the IMF cut Iran’s 2026 growth forecast by 7.2 percentage points from January estimates to -6.1 per cent, reflecting what it described as severe economic disruption linked to energy and transport shocks.

“The contraction of GDP growth for 2026 is … more pronounced for Bahrain, Iran, Iraq, Kuwait, and Qatar and less significant for Oman, Saudi Arabia, and the United Arab Emirates.”

It also projected consumer prices in Iran to rise to 68.9 per cent in 2026, compared with 50.9 per cent in 2025, before easing to 39.6 per cent in 2027.

The Fund said the downturn is driven by damage and disruption to energy infrastructure and shipping routes, with spillovers affecting production, exports, and broader economic activity.

Iran’s economy is expected to recover in 2027, with growth projected at 3.2 per cent, an upward revision of 1.6 percentage points from the January forecast, assuming normalisation of energy output and transport conditions.

“For all these economies, growth in 2027 is expected to rebound, based on the assumption that energy production and transportation are normalised over the next few months—an assumption that may need to be revised if the duration of the conflict extends and the degree of damage suffered gets reassessed.”

However, the IMF warned that the outlook remains highly uncertain and depends on the duration and intensity of the conflict, as well as the pace of recovery in infrastructure and trade routes.

Attribution: Amwal Al Ghad English