Washington: The recent conflict in the Middle East has significantly impacted the economies of the region, leading to disruptions in markets and a diminished growth outlook for 2026, according to the World Bank Group’s Economic Update for the Middle East, North Africa, Afghanistan, and Pakistan (MENAAP). The closure of the Strait of Hormuz and damage to energy and public infrastructure have increased financial volatility and highlighted the need for strategic economic reforms.

According to the World Bank, the conflict has exacerbated existing challenges in the region, such as low productivity growth and labor market issues, emphasizing the need for improved governance and macroeconomic stability. The regional growth forecast, excluding Iran, is projected to decline from 4.0% in 2025 to 1.8% in 2026, a decrease of 2.4 percentage points from earlier projections. The Gulf Cooperation Council economies and Iraq are particularly affected, with growth in the GCC expected to drop by 3.1 percentage points to 1.3% in 2026.

The report warns of further risks if the conflict persists, which could lead to higher energy and food prices, reduced trade, tourism, and remittances, and increased fiscal pressures. Ousmane Dione, World Bank Vice President for MENAAP, emphasized the need for the region to build resilient economies and improve governance to foster long-term job creation and resilience.

The report also examines the potential role of industrial policy in driving economic growth and job creation, stressing the importance of strategic government actions and strong institutions. Roberta Gatti, World Bank Group Chief Economist for MENAAP, highlighted the importance of focusing on long-term peace and prosperity amid the current challenges.