Despite mounting challenges, the Arab region is experiencing a gradual economic recovery, according to a new report released by the United Nations Economic and Social Commission for Western Asia (ESCWA).
Regional growth is projected to increase from 2.9% in 2025 to 3.7% in 2026.
The report, titled “Macroeconomic Outlook for the Arab Region,” examines growth trends in a global context characterized by increasing uncertainty due to rising geopolitical tensions and increasing fiscal pressures, which will hinder efforts to achieve sustainable and inclusive growth in the region.
The region’s inflation rate is expected to fall from 8.2% in 2025 to 5.4% by 2027, due to easing commodity prices and normalization of supply chains, according to the report. Total exports are also expected to increase, supported by the expansion of non-oil exports.
“This improvement is supported by continued economic diversification efforts, especially in high-income countries, fiscal reform measures and increased investment in the non-hydrocarbon sector,” said ESCWA Acting Director Murad Wahaba. “Nonetheless, the region remains highly exposed to external imbalances, particularly amid continued uncertainty around global tariffs and disruptions to regional trade flows,” he continued.
Growth prospects vary by country. High-income countries are expected to see gross domestic product (GDP) growth rise from 3.3% in 2025 to 4.2% in 2026, supported by economic diversification efforts. Growth in middle-income countries is projected to rise from 2.8% in 2025 to 3.3% in 2026, with gradual improvement thereafter, despite continued debt and inflation challenges. In contrast, low-income countries continue to face severe fiscal and humanitarian pressures, with negative growth of 0.9% in 2025, followed by limited recovery in 2026 and 2027.
The report also highlights Gaza’s humanitarian crisis, with reconstruction costs estimated at around $70 billion, amid catastrophic loss of life and destruction affecting almost 78% of buildings.
“This year’s report introduces an innovative approach to analyzing the economic outlook, with ESCWA applying nowcasting models based on machine learning techniques that have been piloted in Egypt and Saudi Arabia. By integrating traditional and non-traditional data sources, these models produce near real-time GDP estimates. This improves the accuracy of the analysis and enables a more timely response to the needs of decision makers,” Waba emphasized.
The report calls on Arab countries to continue to diversify their economies, reduce dependence on hydrocarbons, strengthen investments in human capital, technology and digital transformation, improve public financial management and domestic revenue mobilization, and better align aid and investment flows with national priorities, particularly in conflict-affected countries. It also highlights the importance of strengthening labor market resilience and creating sustainable employment opportunities amid rapid technological change.
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