World Bank Revises Growth Forecasts for Arab Countries

The World Bank has cut its growth forecast for the Middle East and North Africa (MENA) region to 3.4% this year, down from 3.8% in October.

However, this is an increase from the 1.8% growth estimated for last year, and it expects growth to continue to recover to 4.15% in 2026.

The bank attributed the cut in its forecast to the continued production cuts by major oil producers.

It said that the main risks threatening growth prospects in the region are armed conflicts, increased political uncertainty, and unexpected global policy shifts.

It said that other risks include rising global inflation and the resulting tightening of global financial conditions, in addition to the increased frequency of climate events.

The World Bank noted that geopolitical tensions have cost the region’s economies a lot, as the economies of the West Bank and Gaza have been severely affected, with a large number suffering from severe food insecurity and malnutrition.

Neighboring countries have also suffered from the repercussions of the conflict in the Middle East. Although the ceasefire agreed at the end of last November eased tensions in Lebanon, the conflict has caused significant economic damage, with GDP expected to contract by at least 5.7% in 2024.

Ship transit through the Suez Canal has declined as a result of Houthi attacks in the Red Sea, disrupting international trade and increasing security concerns in neighboring countries.

It noted that uncertainty remains high in Syria after the political unrest that occurred in early December.

 January 2025 Growth Forecast Vs October 2024 

Saudi Arabia

The World Bank expects Saudi economic growth to rise to 1.6% in 2024, due to strong non-oil activity supported by large labor markets and a recovery in capital flows.

The bank lowered its forecast for the Saudi economy this year to 3.4% compared to 4.9% forecast last October, but it still reflects an acceleration supported by strong activity in the non-oil sector - especially in services - as well as increased oil production and exports.

Libya

In Libya, he said that amid high inflation, GDP is expected to contract by 2.7% in 2024, due to previous political unrest.

Algeria

The bank expected growth in Algeria to slow to 3.15% last year, mainly due to restrictions on oil activity due to the OPEC+ oil production quota and declining natural gas production.

It said that in oil importing countries, high inflation has slowed the expansion of demand and activity in the private sector, and the repercussions of the conflict in the region have disrupted many economies. 

Growth in oil importing countries fell further last year, to 2.2%, although it is still higher than oil exporting countries.

Egypt

In Egypt, growth slowed to 2.4% in FY23/24 (July 2023-June 2024), driven by lower shipping through the Suez Canal, lower natural gas production, and a contraction in the non-oil manufacturing sector due to higher input costs, ongoing supply bottlenecks, and previous foreign exchange shortages.

However, the liberalization of the exchange rate last March improved investor confidence, boosting private sector activity in the second half of 2024.

Tunisia

He noted that in Tunisia, ongoing drought conditions and weak domestic demand contributed to a slower economic recovery last year than previously expected, with growth limited to 1.2%.

Morocco

Growth in Morocco slowed to 2.9% in 2024, due to slower agricultural production due to drought.

Inflation

Among oil exporters, inflation remained moderate in the GCC countries – in all countries, due to exchange rates pegged to the US dollar – with core inflation slightly above or below zero since last July.

In oil importers, headline inflation has remained high but has gradually slowed since late 2023, especially in Egypt and Lebanon, supported by stable exchange rates.

In the West Bank and Gaza, severe shortages of basic products and disruptions to supply chains, especially in Gaza, have led to significant price increases.

Growth prospects

Growth in the GCC is expected to rise to 3.3% in 2025 and 4.6% in 2026.

The World Bank has lowered its growth forecasts for Algeria, Iraq and Libya in 2025 by 0.4%, 0.5% and 1.1% respectively, but Libya’s growth is still projected to average around 9% in 2025 and 2026, provided oil production fully recovers.

The bank maintained its growth forecast for Egypt at 3.5% during the current fiscal year, rising to 4.2% next fiscal year, a significant acceleration from the levels of the previous fiscal year, driven by private consumption growth amid a gradual decline in inflation, in addition to strong remittance flows and improved economic confidence.

It said that investment in Egypt will support growth, especially in infrastructure development and flows from the UAE.

It expected growth in Jordan to rise slightly to 2.6% annually in 2025-2026, with inflation remaining under control, and in Tunisia, growth is expected to recover to 2.2% in 2025 and 2.3% in 2026, supported by improved external financing, better economic conditions and higher external demand, especially from Europe.

In Morocco, growth is expected to rise to 3.9% in 2025 before slowing to 3.4% in 2026, provided that weather conditions improve and agricultural production increases in 2025.

The economic outlook remains particularly uncertain in Lebanon, Syria, the West Bank and Gaza, and Yemen, given the security and political challenges facing these countries.

In Yemen, the Bank estimates that growth will remain limited to 1.5% this year after two years of decline, due to ongoing security instability amid unstable peace negotiations and high internal tensions.

Fiscal policies in the region are expected to have a neutral impact on growth in 2025, with the regional fiscal deficit remaining broadly stable, despite differences across countries.