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Conflict Hits MENAAP Economies, Underscoring Need for Action to Boost Resilience, Create Jobs
WASHINGTON, Apr. 8, 2026 — The latest conflict in the Middle East has taken a serious and immediate economic toll on countries in the surrounding region. The closure of the Strait of Hormuz and destruction of energy and public infrastructure have disrupted markets, increased financial volatility, and weakened the 2026 growth outlook, according to thelatest edition of the World Bank Group’s Economic Update for the Middle East, North Africa, Afghanistan and Pakistan (MENAAP).
This conflict comes as an additional shock to a region already suffering from low productivity growth, limited private sector dynamism and persistent labor market challenges – underscoring the urgent need to strengthen governance and macroeconomic fundamentals and take action to boost long-term job creation and resilience.
Excluding Iran, overall growth in the region is expected to slow from 4.0% in 2025 to 1.8% for 2026. This forecast stands 2.4 percentage points below the World Bank Group’s January projections. The decline is concentrated in Gulf Cooperation Council economies and Iraq, which are heavily affected by the conflict. Growth in the GCC has been downgraded by 3.1 percentage points since January and is now projected to slow from 4.4% in 2025 to 1.3% in 2026.
Risks are tilted to the downside. In the event of a prolonged conflict, the current impacts on the region will be compounded–through elevated energy and food prices, declining trade, tourism and remittances, increased fiscal pressures, and displacement.
"The current crisis is a stark reminder of the work ahead for the region: not only to weather shocks, but to rebuild more resilient economies with stronger macroeconomic fundamentals, innovate and improve governance, invest in infrastructure, and boost employment-creating sectors," said Ousmane Dione, World Bank Vice President for the Middle East, North Africa, Afghanistan and Pakistan. "Peace and stability are preconditions for the region’s durable development. With peace and the right action, countries can build the institutions, capabilities and competitive sectors that create opportunities for people."
With this long-term vision in mind, the report takes a close look at the region’s potential for industrial policy – government actions to increase strategic business activity as a driver of economic growth and job creation. In the Middle East, North Africa, Afghanistan and Pakistan, the central question is whether such policy is being used in ways that are feasible, accountable, and aligned with countries’ constraints and development goals. Governments in the region have adopted industrial policy at a high rate in the last decade, often through sovereign wealth funds and state-owned enterprises, but the results have been mixed. The report highlights the critical need for strong institutions and careful targeting of policies.
"As countries face the heavy toll of the present conflict, it is important to also not lose sight of the work needed for long-lasting peace and prosperity," said Roberta Gatti, World Bank Group Chief Economist for the Middle East, North Africa, Afghanistan and Pakistan.
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