MENA region wades through murky waters

Global uncertainty clouds economic horizon for oil powerhouses

By Carly Fields

The Middle East and North Africa (MENA) region is bracing for a period of tempered economic growth, as a confluence of escalating global trade frictions, heightened geopolitical fragmentation, and persistent regional conflicts casts a long shadow over its prospects. This was the sobering message from Jihad Azour, director of the Middle East and Central Asia Department at the International Monetary Fund (IMF), during the launch of the May 2025 Regional Economic Outlook for the Middle East and North Africa.

While the IMF projects a continued, albeit slower, increase in growth for the MENA region this year and next, the outlook is notably less optimistic than the forecasts presented in October 2024. Azour highlighted the pervasive impact of global instability, stating, “Rising trade tensions, increased geopolitical fragmentation, and weaker international cooperation are generating extraordinary uncertainty, which is weighing on global economic prospects.” 

The IMF is particularly attentive to the implications of recent changes in US tariff policy announced in April. While direct effects on MENA economies are anticipated to be "modest-given limited trade exposure to the US and exemptions for energy products", the secondary impacts could be far more significant. "The indirect impact could be more pronounced,” Azour said.

Furthermore, lower oil prices, while offering some relief to oil importers, would worsen the fiscal and external positions of oil-exporting economies. While some countries might see marginal benefits from trade diversion, these gains are difficult to predict and would occur against a backdrop of overall trade contraction.

Uncertainty prevails

These global headwinds are compounding existing regional sources of uncertainty, including ongoing conflicts, pockets of political instability, and the ever-present threat of climate vulnerability. Last year was described as "a particularly challenging one for the region, with conflicts causing severe human and economic costs". Average growth in the MENA region for 2024 stood at a revised 1.8%, a 0.3 percentage point downgrade from the IMF’s October forecast. 

However, these projections have been significantly lowered since the October 2024 report. "We have lowered growth projections for both years-from 4% to 2.6% for 2025 and from 4.2% to 3.4% for 2026-to reflect spillovers from global trade tensions and high global uncertainty, a more gradual recovery in oil production, the lingering effects from conflicts in the region, and slower-than-expected progress on structural reforms in some countries,” according to key messages from the report. 

Within the MENA region, the economic narrative diverges between oil exporters and importers. For MENA oil exporters, growth was stable in 2024 at 2.2%, though this masked significant differences between Gulf Cooperation Council (GCC) and non-GCC economies. "In the GCC, robust non-oil activity linked to diversification efforts helped to offset the negative impact of extended OPEC+ production cuts, while a similar buffer was not at work in non-GCC oil exporters,” according to the key messages.

The IMF projects growth for oil exporters at 2.3 percent in 2025 and 3.1 percent in 2026. Again, a split is evident: GCC countries are expected to see a pickup driven by robust non-oil sector expansion and a gradual resumption of oil production. Conversely, non-GCC oil exporters face prospects of lower growth due to sanctions, lower oil prices, capacity constraints, and fiscalunwinding. For all oil exporters, the spectre of "lower oil prices are expected to reduce fiscal and external buffers (with non-GCC countries' external position turning into a deficit)”, the report found.

Growth decline for importers

Meanwhile, MENA oil importers experienced a sharp decline in average growth last year, falling to 1.1 percent from its 2023 level, heavily weighed down by both direct and indirect impacts of conflict. The human and economic toll has been severe; the IMF estimates that economies directly impacted by conflict—namely Lebanon, Sudan, West Bank and Gaza, and Yemen—faced an average GDP loss of approximately 15 percent in 2024. “We estimate that economies directly impacted by conflict—that is, Lebanon, Sudan, West Bank and Gaza, and Yemen—faced an average GDP loss of approximately 15 percent in 2024,” Azour said. The projected higher growth in 2025 for this group is primarily attributed to a less negative impact from ongoing conflicts. Countries like Egypt and Jordan, which "experienced spillover effects from the conflict in Gaza and Israel”, are expected to see a modest recovery in growth in 2025, though challenges persist as the conflict lingers. A few other MENA oil importers, less affected by conflict, are anticipated to see growth rise, driven by stronger domestic demand and the implementation of structural reforms.

The IMF report underscores that these projections are subject to "extraordinary uncertainty”, with risks predominantly on the downside. Azour outlined four key risks: escalating trade tensions, worsening conflicts, climate shocks, and reduced official development assistance. The potential impact of sustained global uncertainty is particularly concerning:

Worsening conflicts could further disrupt trade, tourism, and supply chains, and potentially increase refugee flows. The MENA region also remains acutely vulnerable to extreme weather events such as droughts and floods, while reduced official development assistance could have dire economic and humanitarian consequences, especially for low-income countries and fragile states. However, there are upside risks, notably the swift resolution of conflicts and the accelerated implementation of structural reforms, which could substantially improve regional growth prospects.