World Bank Expects Middle East Regional GDP to Shrink by 2.1 Percent This Year

Washington, Oct 6 (KUNA) — The World Bank on Tuesday forecast a 2.1 percent contraction in regional gross domestic product (GDP) in the Middle East in 2026, affected by the repercussions of the conflict in the region, while projecting growth recovery in the region “excluding Iran” to reach 7.8 percent in 2027, should the intensity of the conflict subside by the end of this year.

The World Bank, in its latest edition of the report on economic developments in the Middle East and North Africa, Afghanistan, and Pakistan, titled “Bridging Gaps and Seizing Opportunities: Artificial Intelligence, Jobs, and Growth,” stated that the ongoing conflict “continues to impose heavy economic costs on the various economies of the region.” It noted that regional GDP is expected to contract by an average of 2.1 percent in 2026, compared to growth of 3.3 percent in 2025. The repercussions of the conflict “extend beyond energy shocks to setbacks in tourism, aviation, and logistics sectors, as well as the impact of growing uncertainty on financial markets and business confidence.”

The bank pointed out that the closure of the Strait of Hormuz has imposed economic burdens on Gulf oil-exporting countries, unlike previous energy shocks that benefited oil-exporting nations. It noted that the decline in export volumes led to significant losses in GDP and government revenues.

The report added that inflationary pressures are rising in most parts of the region, particularly with rising food prices due to disrupted shipping and increased import costs, which places additional strain on supply chains.

Regarding fragile and conflict-affected economies, the report emphasized that the current shock has exacerbated chronic vulnerabilities, noting an increasing concentration of poverty in these economies. It stated that the Middle East and North Africa, Afghanistan, and Pakistan region is the only region in the world where poverty levels have risen over the past decade, while they have declined in other regions worldwide.

The report said that if the intensity of the conflict subsides by the end of 2026, regional growth “excluding Iran” is expected to recover to 7.8 percent in 2027, driven primarily by the recovery of hydrocarbon production and exports. However, it warned that regional recovery “is not guaranteed,” as it will require sustained policy efforts. It noted that damaged infrastructure, delayed investments, and the depletion of fiscal buffers may continue to affect growth for a long time after the direct effects of the shock subside.

In a statement cited in the report, Ousmane Dione, World Bank Vice President for the Middle East and North Africa, Afghanistan, and Pakistan, said that countries able to strengthen their resilience and capacities “will be better positioned to take advantage of future opportunities, particularly in the field of artificial intelligence.”

In this context, the report noted that “artificial intelligence holds promising potential to enhance productivity and growth in the region in the long term, provided existing structural gaps are bridged.” It projected that the main impact of AI at the regional level would be enhancing productivity rather than causing job losses due to automation, clarifying that less than 10 percent of jobs in the region face near-term automation risks, while between 13 percent and 20 percent of them hold significant potential to enhance productivity.

The report stressed that fully harnessing the potential of AI requires addressing several structural gaps, including the limited representation of the region’s languages and data in global AI systems, weak use of AI tools, and gaps in human capital and infrastructure. It considered the limited dynamism of the private sector as one of the main obstacles to realizing these potentials.

The report pointed out that regional cooperation in AI represents an important opportunity for the Middle East and North Africa, Afghanistan, and Pakistan region. It explained that leading countries in this field, such as Saudi Arabia and the United Arab Emirates, can share their expertise in developing models and governance with the rest of the region, while middle-income countries can contribute local talent and data.

The report concluded that more fragile economies can adopt “small AI” technologies—affordable tools designed for specific purposes to operate on basic mobile devices—which can help improve essential services and support local businesses. (End) R.S.R./H.M.F