IMF sharply lowers 2025 growth forecast for Middle East and North Africa

Economies to expand by 2.6%, lower than previously predicted

Kristalina Georgieva, managing director of the International Monetary Fund. AFP

The International Monetary Fund has slashed its growth forecast for the Middle East and North Africa this year, as trade tensions and uncertainty originating from the US spill over into the region.

Economies in the region are projected to expand at a pace of 2.6 per cent this year, 1.4 percentage points lower than the IMF's forecast in October. That comes after a weaker-than-expected growth rate of 1.9 per cent last year. Growth is forecast to pick up to 3.4 per cent in 2026.

The revisions reflect a broader trend around the world, where economic growth is expected to slow this year because of tariffs.

While spillovers from rising trade tensions and the uncertainty accompanying them account for this, the gradual resumption of oil production, lingering effects of conflicts and slower-than-expected implementation of reforms are also contributing.

IMF regional director Jihad Azour previewed the region's growth prospects during last week's bi-annual meetings. Mr Azour said at the time that greater uncertainty could erode confidence.

IMF regional director Jihad Azour at the fund's headquarters in Washington on April 24. AFP

“These developments are adding to existing regional social uncertainty, including ongoing conflicts, pockets of political instability and climate vulnerability,” he said. Exposure from US tariffs are expected to be limited, he added.

Diverging trends for exporters

The IMF anticipates divergent paths for oil exporters this year, with members of the Gulf region expected to see greater economic growth this year and next.

The six-member bloc is projected to grow by 3 per cent this year and 4.1 per cent in 2026, both downgrades from the fund's October forecast. The IMF attributed the decrease to to extension of voluntary Opec+ cuts, their phase-out by the end of next year and lower non-oil growth.

Infrastructure projects and diversification efforts are forecast to support non-oil growth, although the IMF also lowered this due to changes in investment plans because of lower oil prices.

The UAE's economy is projected to expand at 4 per cent this year and 5 per cent in 2026. Saudi Arabia, the region's largest economy, is forecast to see its GDP increase by 3 per cent and 3.7 per cent in 2025 and 2026, respectively – both large downgrades from the fund's October projections.

Non-Gulf oil exporters are projected to see economic growth of 1.4 per cent this year, down from the 3.6 per cent forecast in October, reflecting the IMF's “significant reduction” to its oil production projections, sanctions on Iran and lower non-oil growth.

Growth rebound for importers

Uncertainty surrounding trade will add to the impact of conflict on oil importers in the Middle East and North Africa, although growth is forecast to increase to 3.4 per cent this year.

Growth rates in Lebanon, Sudan, the West Bank, Gaza and Yemen are projected to pick up this year, “reflecting a smaller negative impact of the conflict on output levels compared to 2024”, the IMF said. Growth is still expected to remain negative in some cases, while the IMF did not provide projections for Lebanon or the West Bank and Gaza.

Egypt and Jordan, whose economies have faced spillovers from conflict in the region, are to see their GDP pick up by 3.8 and 2.6 per cent this year, respectively. However the fund said sluggish implementation of reforms and the spillover effects will continue to weigh on economic growth.

Downside risks

Key downside risks remain in the region, including economic policy and trade uncertainty. However, the fund noted that trade distortions will have a greater indirect than direct effect.

Among these indirect effects are disruptions in foreign direct investment, a global slowdown, strengthening of the dollar and tighter monetary policy.

“Higher interest rates and a stronger US dollar could increase the already high gross public financing needs in several economies in the Mena region, raising concerns about debt sustainability and the stability of their banking systems,” the fund said.

This could lead to lower near and medium-term growth for highly indebted countries, its added. Some countries, however, could benefit from trade diversions.

Meanwhile, escalating geopolitical trade tensions could also unsettle commodities which could create external and fiscal pressures for both importers and exporters, the fund said.