Arab Economic Growth to Slow in 2026 Before Rebounding in 2027

The Arab region's economic growth is set for a sharp deceleration in 2026, with projections indicating a rise of only 1.8%, a stark contrast to the 3.9% expected in 2025. This downturn, detailed in the Arab Monetary Fund's (AMF) latest report, is largely ascribed to ongoing geopolitical tensions in the Middle East. These conflicts are reportedly disrupting oil and gas production in Gulf countries and hampering international supply chains and trade.

Despite the anticipated slowdown, the AMF anticipates a robust recovery the following year. Growth is forecast to rebound to 5.6% in 2027. This projected resurgence is expected to be fueled by several factors, including a recovery in oil production, a decrease in inflation rates, a strengthening of domestic demand, and the continued implementation of structural reforms designed to diversify Arab economies away from their heavy reliance on oil.

The report also highlights that regional inflation is expected to remain elevated, standing at 15.1% in 2026 before moderating to 11.0% in 2027. This gradual decline in inflation is contingent on factors such as energy and commodity prices, as well as internal conditions within various Arab nations. Capital accumulation is identified as a persistent driver of Arab growth, contributing significantly to GDP.

Fahd ben Mohammed Al-Turki, the AMF's Director General, emphasized the varying challenges faced by member countries due to their distinct economic structures. He advised prudent management of economic policies, urging coordination between fiscal and monetary strategies to curb inflationary pressures. Al-Turki also called for readiness to tighten monetary policy if necessary, stressing the importance of fiscal and monetary sustainability as the output gap is projected to widen in 2027.