The economy of the Middle East, North Africa, Afghanistan and Pakistan will shrink 2.1% in 2026, the World Bank’s chief economist for the region said, reversing its earlier growth forecast.
The bank had forecast 3.6% growth in January. Its October forecast marked a downgrade of 5.7 percentage points, with losses concentrated among Gulf oil and gas exporters.
The remarks came during the World Bank Group’s “Economic Growth and AI's Uneven Promise in MENAAP” event, published Nov. 5. The discussion covered the conflict’s economic costs before turning to artificial intelligence and jobs.
The bank’s regional vice president said the conflict that began in February disrupted trade routes, increased energy price volatility and deepened humanitarian needs. Economies also face gaps in skills, infrastructure and business activity that limit their ability to benefit from AI.
The chief economist said Gulf oil production fell from 26 million barrels a day to 16 million after the Strait of Hormuz closed, with only limited recovery. European and East Asian gas prices rose, while U.S. prices changed little.
The United States has been a net gas exporter since 2017. The bank cut its global growth forecast by 0.1 percentage point to 2.5%, indicating that the economic losses remained concentrated in the region.
Gulf Cooperation Council economies face a 4.3% contraction, against January’s forecast of 4.4% growth. The bank forecast contractions exceeding 20% in Qatar, about 15% in Kuwait and 12.4% in Iraq.
Developing oil importers’ growth forecast rose to 4.3% from 3.9%. Higher oil prices usually benefit exporters, but restrictions on production and shipments prevented them from capturing those gains.
Forecasts remain highly uncertain. Estimates from roughly 30 to 40 private forecasters varied widely, leaving the scale of the region’s eventual economic losses unresolved.
The conflict compounded existing hardship. The bank said 50% of Gaza households were both food insecure and displaced, while one in four children in accessible areas of Yemen suffered acute malnutrition.
More than 4 million people were forced to return to Afghanistan from neighbouring countries in 2025 and 2026, straining services and jobs. The bank forecast falling economic output per person there.
Internal displacement in Lebanon fell to 350,000 people from 1.2 million at the conflict’s outset.
Turning to AI, the chief economist described rapid growth in large models since October 2022. Saudi Arabia and the United Arab Emirates are developing advanced models alongside activity led by China and the United States.
The bank estimated that AI could automate less than 10% of regional employment, reflecting the prevalence of manual work. It could help workers become more productive in jobs representing 13% to 20% of employment.
Three gaps limit those opportunities. First, models need local languages and data: Arabic speakers account for about 6% of the world’s population, but Arabic accounts for only 0.7% of web addresses.
Second, access has not translated into widespread workplace use. Even wealthy regional economies use AI less than their incomes would predict, with broader adoption across occupations mainly evident in the UAE.
Third, electricity, internet capacity and engineering skills remain uneven. Engineering talent is growing but moving towards OECD countries and Gulf states, including Qatar, Saudi Arabia and the UAE. The supplied remarks ended before completing the account of where workers were leaving.
