The Arab region’s economy is on a gradual recovery path, with growth expected to accelerate to 3.7 percent in 2026, a marked gain from the 2.9 percent growth in 2025, according to a new report by the United Nations Economic and Social Commission for Western Asia (ESCWA).
The report, titled Macroeconomic Outlook in the Arab Region, identifies a combination of economic diversification, fiscal reforms, and investment in non-hydrocarbon sectors as key drivers of the projected expansion. Regional inflation, which averaged 8.2 percent in 2025, is expected to ease to 5.4 percent by 2027 as commodity prices decline and supply chains stabilize.
Despite positive momentum, ESCWA warns that geopolitical tensions and global trade disruptions remain significant risks to the outlook. The report specifically cites the spillover effects of conflicts in Gaza, Sudan, Yemen, and Syria, as well as tensions between Iran and Israel. These uncertainties continue to weigh on trade flows and investor confidence.
In comparison, the World Bank’s latest update also projects regional GDP growth of around 3.3 percent in 2026 across the Middle East, North Africa, Afghanistan, and Pakistan, bolstered by stronger-than-expected performance in Gulf Cooperation Council (GCC) economies and some developing oil importers.
Economic Divergence Among Countries
ESCWA’s analysis highlights widening disparities in growth prospects across different income groups:
High-income GCC states such as Saudi Arabia and the UAE are expected to post more robust growth thanks to diversification into manufacturing, tourism, and digital sectors.
Middle-income countries face persistent challenges related to debt, inflation, and external shocks.
Conflict-affected low-income nations including Somalia, Sudan, Syria, and Yemen continue to struggle, with GDP expected to contract before recovering modestly in 2026 if peace and reconstruction efforts begin.
Saudi Arabia’s real GDP growth is forecast to average about 3.3 percent between 2025 and 2027, underpinned by investments in manufacturing, real estate, and tourism. Meanwhile, the UAE is expected to deliver an average growth rate of 4.5 percent over the same period.
Opportunities in Non-Oil Sectors
In interviews conducted for the report, ESCWA economists emphasized that sustainable returns are most likely to come from real economy sectors. Priority areas include:
• Modern manufacturing
• Agriculture and food processing
• Fisheries and agri-business
• Tourism and hospitality
• Technology adoption across industries
These sectors offer resilient returns and employment generation, particularly in economies with diversified income streams.
Trade and External Risks
The analysis also notes that elevated global tariff uncertainties, especially recently imposed U.S. tariffs on textiles, fertilizers, chemicals, and electronics, have increased trade risk for many Arab exporters. Jordan, for example, could see nearly 25 percent of its goods impacted by such tariffs.
Slower growth among major trading partners, especially China and the European Union — accounting for nearly a third of Arab exports, could further challenge sustaining robust expansion.
Innovation in Economic Forecasting
In an effort to improve policy responsiveness, ESCWA has developed machine-learning “nowcasting” models that integrate traditional economic indicators with alternative data sources like Google Trends and satellite imagery. These tools provide near real-time GDP estimations and help policymakers make timelier economic decisions.
For example, nowcasting models suggest Egypt’s GDP could grow around 4 percent in 2025, while Saudi Arabia’s GDP could expand by 4.3 percent in the same period.
Outlook and Policy Recommendations
The report concludes that lasting peace and stability remain essential for sustainable economic recovery across the region. ESCWA urges Arab governments to:
• Deepen economic diversification away from hydrocarbon dependence
• Strengthen public financial management and debt strategy
• Invest in human capital and digital transformation
• Align investment and aid with national development priorities, especially in fragile and conflict-affected states
