Trade tension key risk to Mena economic outlook, IMF warns

Saudi Arabia's annual economic growth prospects at 3 per cent, while UAE's forecast to increase by 4 per cent this year

International Monetary Fund managing director Kristalina Georgieva said the Mena growth forecast is 'quite a downgrade'. AFP

Trade tension remains a key risk facing the Middle East and North Africa's economic prospects, the International Monetary Fund said on Thursday, with the indirect impact of US tariffs expected to drag down growth.

The IMF projects the Mena economy to grow by 2.6 per cent this year, down 1.3 percentage points from its previous estimate. Growth is expected to pick up to 3.4 per cent next year.

“Quite a downgrade,” IMF managing director Kristalina Georgieva said during a news briefing.

The IMF has also cut its 2025 growth prospects for Saudi Arabia, the world's largest oil exporter, from 3.3 per cent to 3 per cent. The UAE economy is expected to grow by 4 per cent this year before growing by 5 per cent in 2026.

The fund's updated World Economic Outlook attributed the region's downgrade to a more gradual resumption of oil production, spillovers from conflicts, and slower-than-expected progress on reforms.

The indirect impact of US tariffs are expected to have a more pronounced effect on economic outlook for the Mena region than direct exposure.

The US dollar has fallen since Mr Trump announced his larger-than-expected tariff agenda earlier this month. The US dollar index, which measures the greenback against a basket of foreign currencies, fell to 99.34 on Thursday.

“If you're an oil exporter … and get your revenue in dollars, when the dollar weakens, that creates a big problem for your fiscal position,” Ms Georgieva said. However, oil importers could benefit from a weaker dollar, she said.

Oil prices are expected to average $66.9 per barrel this year before falling to $62.4 in 2026.

The fund earlier this week lowered its 2025 global growth forecast to 2.8 per cent due to the uncertainty surrounding tariffs.

For the Mena region, the indirect impact on tariffs could also lead to lower oil prices, and the financial stability could impact capital flows into countries with high levels of debt.

“The recent escalation in trade tension has already damaged global growth prospects while triggering intense financial volatility,” IMF Middle East and Africa director Jihad Azour told reporters.

But the resetting of global trade norms also represents new opportunities for the region.

“This would require … for countries in the region to seek new opportunities in terms of strengthening the economic relationships and trades with regions close to them,” Mr Azour said.

He said that some countries in the region have undertaken diversification strategies to reduce dependence on oil as a source of income. Ms Georgieva had also said most Gulf Co-operation Council countries are making progress in their diversification strategies.