The International Monetary Fund on Friday lowered its growth forecast for the Middle East and North Africa this year, largely reflecting a slowdown in Saudi Arabia's economy due to Opec+ production cuts.
The broader Mena economy is projected to grow by 3.5 per cent this year, according to the IMF's latest World Economic Outlook, half a percentage point down from its October update.
Saudi Arabia, the biggest Arab economy and Opec’s top oil producer, is forecast to grow by 3.3 per cent in 2025, a downwards revision of 1.3 percentage points. Its economy is projected to grow by 4.1 per cent in 2026, which is down by 0.3 percentage points from the fund's October forecast.
Largely accounting for this revision is the Opec+ voluntary production cuts. Eight members of the Opec+ oil producers group agreed in December to extend their voluntary cuts of 2.2 million barrels per day of crude production until March this year before gradually phasing them out until the end of September 2026.
US growth carries global activity
The downwards revision in the Middle East economic forecast is also reflective of a broader trend in the global economy this year, one dominated by diverging growth prospects amid a high degree of policy uncertainty.
“Overall, we're seeing global economy realigning with potential output. So this is the end of a very unusual sequence and the beginning of a new one,” IMF chief economist Pierre-Olivier Gourinchas told reporters.
Altogether, global growth is set to maintain a steady 3.3 per cent expansion pace this year and next. At the same time, inflation is expected to continue on the downwards trajectory, to 4.2 per cent by the end of 2025 and 3.5 per cent at the close of 2026.
Driving much of the world's economic activity is the US, where GDP is set to pick up by 2.7 per cent in 2025, half a percentage point higher than the IMF's previous forecast.
The strong 2024 performance – along with a robust labour market and accelerating investment – also accounted for the IMF’s latest upgrade for the US economic forecast.
“We have stronger demand in the US, weaker demand in other parts of the world, but some of it is structural, especially when you look at the US versus the euro area,” Mr Gourinchas said.
Greater uncertainty and weaker-than-expected manufacturing momentum towards the end of last year caused a downwards shift in the IMF's forecast for the euro area, which now projects its economy to grow by 1 per cent in 2025, 0.2 percentage points lower than its October projection.
China's economy, which received a slight upgrade, is now projected to climb by 4.6 per cent in 2025, while growth in other emerging market and developing economies is largely expected to match the 2024 levels. India's economy is projected to grow at a solid 6.5 per cent pace in 2025 and 2026, in line with the IMF's previous forecast.
The Washington-based lender expects growth in sub-Saharan Africa to increase in 2025, while economies in emerging and developing Europe are set to slow down.
Policy uncertainty
The world is facing a heightened degree of policy uncertainty this year after a historic year in which about half of the world voted in elections. While the euro area and China face downside risks, Mr Gourinchas said the scenario “is a bit more complex” in the US.
The fund said it did not factor potential policy changes into its baseline projections because they have yet to be implemented.
“But we have to think about them and they could affect the trajectory for the global economy,” Mr Gourinchas said.
Possibly the greatest policy uncertainty surrounds that of Donald Trump, who is set to begin his second term as US president next week.
Mr Trump, during the run-up to the 2024 elections, promised that he would impose a sweeping set of tariffs on trading partners plus an extra levy on China, increase deportation of migrants, extend parts of his tax cuts that are set to expire this year and usher in a new era of deregulation.
The IMF said trade and fiscal uncertainty have led to a sharp increase in economic policy uncertainty, with expectations of new policies for incoming governments already being priced into financial markets.
“All of these layers … have a common element. They tend to increase price pressures,” Mr Gourinchas said. “The bottom line here is that in the near term, the risk could increase the divergence between the US and the rest of the world, and is already under way now in terms of policies.”
Such diverging economic prospects could also deliver a divergence in central banks' monetary policy adjustments.
The Federal Reserve has already indicated it will slow the pace of rate cuts this year due to firmer inflation, while minutes released from the central bank's December meeting showed officials did factor in Mr Trump's policies to their economic forecast.
“There is a strengthening of the US currency that is increasing inflation pressures in other parts of the world, especially emerging market economies,” Mr Gourinchas said.
