The World Economic Forum (WEF) has identified geopolitical uncertainty as the most significant threat to the global economy, surpassing concerns about asset bubbles and trade issues, particularly in the context of escalating conflicts in the Middle East and Europe. A survey of chief economists revealed that 97 percent expressed concern over the impact of the ongoing war in the Middle East, which has now lasted seven months, warning it could pose severe economic challenges in the coming year. Iran's activity in the Strait of Hormuz, where it recently threatened 46 commercial vessels, is particularly alarming. This strait is crucial as it typically accounts for about one-fifth of global oil and gas supplies, and the number of vessels passing through has significantly decreased since the onset of the conflict.
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The WEF's September Chief Economists' Outlook also highlighted the effects of the Russia-Ukraine conflict, which has impacted shipping operations in the Black Sea. This could potentially reduce global cereal exports by up to 17 percent due to disruptions in grain exports from major suppliers.
Factors contributing to economic fears include asset price corrections noted by 58 percent of respondents, while 42 percent pointed to trade and investment restrictions as significant threats. Additionally, 39 percent cited war-driven energy shocks, and 17 percent mentioned supply chain disruptions.
Despite the vulnerabilities in the broader Middle East and North Africa (MENA) region, the economic outlook has improved since WEF's May survey. About 57 percent of chief economists now anticipate moderate or stronger growth in the next 12 months, a notable rise from the 12 percent expecting such growth in May. Nevertheless, 42 percent still predict weak growth.
The conflict between the US and Iran, ongoing since February 28, has led to drone and missile strikes across the region and the closure of the Strait of Hormuz, adversely affecting sectors such as hospitality, aviation, and tourism. Negotiations for a peace deal between the US and Iran have thus far failed.
The International Monetary Fund (IMF) has revised its 2026 growth forecast for the Middle East down to 0.7 percent, a reduction of 1.2 percentage points from April, largely due to the implications of the Strait of Hormuz closure on regional energy exports. However, the IMF projects growth will rebound to 6.5 percent in 2027.
The WEF report noted a 4.8 percent contraction in Saudi Arabia's economy in the second quarter of this year, reflecting ongoing regional disruptions, with oil activity down by 24.7 percent. The report anticipates a growth of 1.7 percent in Saudi Arabia by 2026, while Iran’s economy is expected to shrink by 5.4 percent this year.
In terms of unemployment, 63 percent of respondents expect no change, while 22 percent foresee an increase, indicating a stabilizing but not fully recovering economic landscape. Inflation expectations have also moderated significantly since May, with 62 percent now anticipating moderate inflation and 27 percent expecting high levels, compared to 55 percent anticipating high or very high inflation previously. The WEF report noted a significant disparity in inflation experiences across the region, exemplified by consumer prices falling in Morocco but soaring in Iran, which recorded an inflation rate of 84.4 percent in August.