Voluntary Opec+ production cuts reduce Middle East’s 2025 outlook, World Bank says

Middle East and North Africa forecast to grow by 3.4 per cent this year, a 0.8 per cent decrease from previous projection

Saudi Arabia and other Opec+ members extended their voluntary production cuts in December last year. AFP

The World Bank on Thursday lowered its 2025 growth forecasts for the Middle East and North Africa largely due to the extension of voluntary Opec+ production cuts.

Growth in the region is expected to increase from 1.8 per cent last year to 3.4 per cent this year, a downgrade of 0.8 per cent from the World Bank's June forecast. Growth is expected to rise to 4.1 per cent in 2026.

“The outlook for this year has deteriorated since June, primarily due to extended oil production cuts by major oil partners,” the World Bank said in its updated Global Economic Prospects report.

Eight oil-producing nations, including Saudi Arabia, announced in December they had agreed to extend voluntary output cuts of 2.2 million barrels per day until March. The group said after that date, the supply curbs will be phased out each month through to the end of September 2026.

The World Bank had expected Opec+ to lift the production cuts by the end of last year.

Growth in countries belonging to the GCC grew by 1.6 per cent last year due to strong labour markets and a recovery of capital inflows supporting strong non-oil activity.

The World Bank also lowered its growth outlook for the GCC this year by 1.4 percentage points to 3.3 per cent because of the extension of the production cuts. Growth is forecast to increase to 4.6 per cent next year.

Among oil exporters, the UAE's economy also faces a slight downgrade. The World Bank projects the UAE's economy to increase by 4.0 per cent this year (0.1 per cent lower than its June projection) after growing 3.3 per cent last year. Growth in Saudi Arabia is estimated to be 3.4 per cent this year, 2.5 per cent below the World Bank's previous forecast.

Growth for oil importers is projected to reach 3.7 per cent this year before rising to 4 per cent next year due to stronger domestic demand amid easing inflation. Egypt's economy is projected to grow to 3.5 per cent in the 2024-25 fiscal year before expanding further to 4.2 per cent the following year due to stronger private consumption as inflation continues to ease.

The World Bank also anticipates financing from the UAE will help secure investment in Egypt.

Oman and Qatar's growth forecasts were also lowered by 0.4 and 0.5 per cent. The World Bank now expects Oman's economy to grow by 2.4 per cent this year, while activity in Qatar is set to increase by 2.7 per cent.

Projections for Iraq, Kuwait and Tunisia were lowered to 3.5, 1.7 and 2.2 per cent. Forecasts for Bahrain and Jordan were unchanged at 3.3 per cent and 2.6 per cent, while Morocco's growth forecasts were upgraded by two percentage points to 3.9 per cent.

The World Bank did not produce forecasts for Lebanon, Syria and Yemen due to a “high degree of uncertainty”.

The bank said risks for the region remain tilted to the downside due to regional conflicts and policy uncertainty, pointing to so-called unexpected global policy shifts. Further protectionist policies by trading partners could also reduce exports for oil importers.

Developing countries face 'tougher slog'

In its report, the World Bank anticipates global growth to increase by 2.7 per cent this year and in 2026, the same pace as last year, as inflation continues to moderate.

However, it warned that developing nations will have a more challenging time in reaching the income levels of advanced economies. Developing economies are expected to end the first quarter of this century with the weakest long-term growth outlook since 2000, the World Bank said.

“The next 25 years will be a tougher slog for developing economies than the last 25,” Indermit Gill, the World Bank Group’s chief economist and senior vice president for development economics, said.

The World Bank said many factors that helped these economies grow at a faster rate decades ago – such as economic integration and foreign direct investment inflows – have faded.

“In their place have come daunting headwinds: high debt burdens, weak investment and productivity growth, and the rising costs of climate change,” Mr Gill said.

Global policy uncertainty and rising trade tension also pose serious challenges for developing economies, while inflation could prolong interest rate cuts, the World Bank said.