REGIONAL PROSPECTS

MENA ECONOMIES SHOW SURPRISING RESILIENCE

Oil exporters in the Middle East and North Africa (MENA) region have shown resilience amid global economic challenges. 

Despite disruptions in cargo trade and the extension of OPEC+ oil production cuts, the GCC economies have continued to advance economic reforms, boosting investment and labour force participation. Non-oil sectors in the GCC have shown notable strength, helping offset contractions in oil activities. As a result, non-oil growth in the GCC is projected at 3.7% in 2024 and 4% in 2025, driven by ongoing diversifi- cation efforts, according to the International Monetary Fund (IMF).

Growth across MENA economies is expected to remain slow in 2024, with a projected expansion of 2.1%, reflecting challenges such as global geoeconomic fragmentation, conflicts, climate shocks, and voluntary oil production cuts. This represents a 0.6 percentage point downward revision from earlier IMF forecasts.  

Outside the GCC, growth in some oil-exporting countries, such as Iran, Libya, and Algeria, has benefited from high oil and natural gas prices. In Iraq, fiscal stimulus and strong agricultural performance have bolstered non-oil activity, supporting overall growth.

MACRO FUNDAMENTALS

Inflation rates for MENA oil exporters are expected to remain low, particularly in the GCC, where it is forecast at about 2% in 2025 and beyond. However, oil price declines and ambitious investment strategies are likely to weigh on fiscal and current account balances.The GCC’s current account surplus is projected to shrink to 2.5% of GDP by the medium term, compared to 6.1% in 2024. Saudi Arabia is expected to see a current account deficit in 2025, while surpluses in Kuwait and Qatar will narrow significantly.

Although non-oil sectors are forecast to underpin medium-term growth, economic diversification reforms will take time to fully materialise. The oil sector will continue playing a significant role in MENA economies,particularly in export revenues and fiscal stability, even as efforts to decouple from oil reliance persist.

“Saudi Arabia and Kuwait are projected to continue public investments, and Bahrain is facing a structural decline in oil revenues,” according to the IMF’s latest forecast for 2025, still efforts to enhance revenue streams are underway, which are expected to help narrow primary non-oil deficits. 

“Notably, after adopting or committing to adopt a value-added tax, some GCC countries are now in the process of introducing a corporate income tax, in part amid implementation of the global minimum corporate income tax,” the IMF stated.

GLOBAL GROWTH

Global growth is expected to remain steady yet underwhelming, with projections holding at 3.2% for both 2024 and 2025, according to the IMF. The US outlook has been upgraded, compensating for downgrades to major European economies and other regions. The US GDP will grow 2.2% in 2025, compared to 2.8% in 2024, but it is still at a faster clip than other advanced nations, which will expand 1.8% in 2025. 

Emerging market and developing economies face challenges such as disrupted commodity production, conflicts, and extreme weather, leading to downward revisions for the Middle East, Central Asia, and sub-Saharan Africa. However, emerging Asia has benefited from rising demand for semiconductors and AI-driven electronics investment, bolstering growth.

China’s GDP is expected to expand by 4.5% in 2025 (compared to 4.8% in 2024) as the economy underperforms from its average growth levels of well over 5%. Meanwhile, the Indian economy, which has outpaced China’s in recent years, will expand by 6.5% in 2025, compared to 7% in 2024.

Despite cyclical rebalancing in major economies that has aligned activity with potential output, structural headwinds like aging populations and weak productivity continue to constrain long-term growth. The latest five-year growth projection remains modest at 3.1%, falling short of pre-pandemic averages. These trends highlight the enduring impact of demographic and productivity challenges on potential growth globally.

While inflation has eased significantly as global economic imbalances diminish. Headline inflation is expected to drop from 6.7% in 2023 to 5.8% in 2024 and further to 4.3% in 2025. Advanced economies are projected to achieve their inflation targets sooner than emerging markets. However, challenges remain, particularly in the services sector where inflation continues to be elevated in many regions. This underscores the importance of understanding sectoral inflation dynamics and tailoring monetary policies to maintain stability.

Although prices of goods have largely stabilised, the persistence of high services inflation could lead to bumps on the road to global price stability, the IMF suggests.