IMF Projects Steady Growth for Middle East Despite Global Risks

The Middle East looks set to follow the steady global growth trend, though some risks still linger. The IMF says the region’s total growth should reach 3.9 percent in 2026. The Middle East and Central Asia keep showing remarkable strength despite global economic uncertainty. Growth numbers should get even stronger at 4 percent in 2027.

The Middle East’s economy keeps getting better, especially when you look at countries that export oil. The IMF has boosted its 2025 GDP growth forecast for the MENA region by a lot – now at 3.3 percent, up from their earlier May projection of 2.6 percent. Saudi Arabia, which has the Arab world’s biggest economy, will lead this growth push with rates of 3.9 percent and 4 percent in the years ahead. The UAE stands out as a soaring win story in economic diversification. Its non-oil sectors now make up more than 75 percent of its GDP. The country has pulled in over US$45 billion in foreign direct investment – a nearly 50 percent jump from last year. This happened even as global FDI dropped by 11 percent.

These bright forecasts come with some warning signs. The IMF’s research suggests AI will affect about 40 percent of jobs worldwide through improvements, changes, or replacements.

IMF Raises Growth Forecasts for Middle East

The IMF has revised its economic outlook for the Middle East region with higher projections than before. The MENA region’s growth forecast for 2025 now stands at 3.3%, up from the 2.6% predicted in May. Growth projections show an upward trend that could reach 4.0% by 2027.

GCC countries will likely see their economic growth climb to 3.2% in 2025 and reach 4.5% in 2026. This growth surge comes from the expected removal of OPEC+ oil production cuts and strong performance in non-oil sectors across the region.

Current data reveals positive trends. Saudi Arabia recorded 1.3% economic growth in 2024, while its non-oil activities grew by 4.3%. The country’s GDP expanded 4.5% year-on-year in the fourth quarter of 2024, marking the highest quarterly growth in two years. The wholesale and retail trade, restaurants, and hotels sector led with 6.4% annual growth, while financial services grew by 5.7%.

The UAE economy showed strong momentum as its real GDP grew 3.9% in Q1 2025. Non-oil activities expanded by 5.3%. Manufacturing emerged as the top performer with 7.7% growth, while finance and insurance sectors grew 7.0%.

Geopolitical Tensions and Trade Disruptions Threaten Outlook

The Middle East region’s economic outlook faces mounting challenges from geopolitical conflicts. Recent data shows the Red Sea crisis has hit Suez Canal revenues hard, with a sharp 64.3% drop as of May 2024. Ship traffic has dwindled to 1,111 vessels from 2,396 in the same period last year. This crisis has led to a steep 68.5% fall in cargo volume.

Ships now take a longer route around Africa’s Cape of Good Hope, as maritime companies adapt to the situation. This detour adds about 10 days to transit times and pushes fuel usage up by 40%. These disruptions have pushed shipping costs higher, and container rates between Shanghai and Genoa now exceed AED 22,031 per 40-foot container.

The global trade landscape continues to fragment as nations seek strategic autonomy through bilateral deals, export restrictions, and tariffs. The Ukraine conflict’s sanctions have rippled through Middle Eastern economies. Global food prices have risen by 5%, while wheat costs have jumped 35%.

The IMF cautions that any expansion of conflicts beyond Gaza or worsening Red Sea disruptions could hurt regional trade and tourism significantly. Countries that import oil, such as Lebanon, Jordan, and Palestine, face heightened risks. These nations struggle with growing pressure on their international reserves and exchange rates.

AI Investment and Fiscal Policy Shape Resilience

AI investment has become the life-blood of economic diversification in the Middle East. The technology will contribute AED 1175.02 billion to the region’s economy by 2030, which represents 2% of global AI benefits. Saudi Arabia expects gains of AED 496.45 billion, equal to 12.4% of GDP. The UAE projects the strongest effect with nearly 14% of GDP.

The US made a significant move by authorizing exports of advanced AI chips to Saudi Arabia’s Humain and UAE’s G42. This authorization includes 35,000 Nvidia Blackwell processors valued at AED 3.67 billion. These companies responded by announcing major data center projects, including Stargate UAE, which will launch in 2026.

GCC nations complement their technology investments with fiscal consolidation efforts. They have implemented medium-term budgetary frameworks. Kuwait, Oman, Saudi Arabia, and both Abu Dhabi and Dubai have established dedicated debt management offices. Fiscal deficits that reached 10.6% of GDP in 2016 should decrease to 5.2%.

Countries like the UAE with substantial financial buffers can adjust their policies gradually. However, Bahrain and Oman need more aggressive deficit reduction strategies. This balanced approach to fiscal policy combined with targeted AI investments builds a foundation for environmentally responsible economic resilience beyond oil dependence.

The IMF’s latest projections show remarkable resilience throughout the Middle East and Central Asia regions. Economic growth continues its upward trend despite global challenges, especially in oil-exporting nations. Saudi Arabia showcases traditional economic strength while the UAE proves successful in its diversification efforts. The UAE has reduced its dependence on oil by a lot and attracted high levels of foreign investment when global FDI was contracting.

Notwithstanding that, several challenges appear ahead. The Red Sea crisis has disrupted key trade routes that severely affect Suez Canal traffic and global shipping costs. On top of that, AI could revolutionize regional labor markets and affect 40% of jobs through improvements, displacement, or complete changes.

Regional governments have taken action to address these challenges. Middle Eastern countries see AI investment as the life-blood of their economic diversification strategies. Technology could add AED 1175.02 billion to the regional economy by 2030. GCC nations have shown promising results in their fiscal consolidation efforts. Their medium-term budgetary frameworks have helped reduce deficits by a lot since 2016.

The road ahead brings both opportunities and challenges. Oil remains a vital economic driver for many countries, yet ongoing diversification efforts across the region create promising paths for green growth. Countries that balance tech adoption, fiscal discipline, and manage geopolitical risks will emerge stronger from current global uncertainty. The Middle East looks set to maintain its growth momentum through 2027 if regional stakeholders adapt to changing economic realities while addressing external stability threats.