The 'biggest' risk to Asia’s economies isn’t over yet, IMF warns

The risk of a prolonged war and renewed disruptions to energy production, shipping routes and critical infrastructure remains the biggest threat to economies across the Middle East and Central Asia, the International Monetary Fund (IMF) said on Thursday, warning that existing buffers against the energy shock are running down.

Jihad Azour, the IMF's director for the Middle East and Central Asia, said the conflict was imposing an uneven economic shock across the broader region, with countries directly affected facing severe pressure. The outlook will depend on how quickly energy production and trade normalise, and on governments' ability to preserve macroeconomic stability, he said.

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“Buffers bought time, but they are finite. Inventories are lower, spare capacity is tighter, and renewed disruption could generate much larger price adjustments,” Azour told reporters during the annual meetings of the IMF and World Bank in Bangkok.

Energy buffers are running down

Pre-war fiscal surpluses, alternative shipping routes, adjustments in demand and substantial inventory drawdowns have helped contain the energy shock triggered by US-Israeli-led attacks on Iran and Tehran's subsequent closure of the Strait of Hormuz.

However, with inventories lower and spare capacity tighter, further disruptions could trigger much sharper price adjustments, leaving economies more exposed to renewed volatility in energy markets.

The IMF expects the Middle East, North Africa and Pakistan region to contract by 1.3% in 2026, following growth of 3.3% in 2025. The region is projected to rebound to 6.6% growth in 2027, although the recovery will vary substantially across economies.

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Regional growth faces a mixed outlook

Oil-exporting countries directly affected by the war are expected to see a significant contraction in 2026, followed by a sharp recovery in 2027 as energy production normalises. Their output, however, is expected to remain below pre-war medium-term projections.

Oil-importing economies in the region have proved resilient and are expected to remain so, Azour said.

The Caucasus and Central Asia region has also weathered the shock relatively well, with inflation expected to continue declining from elevated levels. The IMF projects growth in the region to slow to 5.2% in 2026 and 5% in 2027, from 6.2% in 2025.

Azour said policymakers should prioritise price stability, rebuild fiscal buffers and strengthen their ability to withstand future shocks.

(With inputs from Reuters)