The Arab region is experiencing a gradual economic recovery despite mounting challenges, according to a new report issued 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 in the Arab Region”, examines growth trends within a global context marked by rising uncertainty due to escalating geopolitical tensions and increasing financial pressures, which will hinder efforts to achieve sustainable and inclusive growth in the region.
According to the report, regional inflation is expected to decline from 8.2% in 2025 to 5.4% by 2027, driven by easing commodity prices and the normalisation of supply chains. Total exports are also projected to grow, supported by an expansion in non-oil exports.
“This improvement is underpinned by ongoing economic diversification efforts, particularly in high-income countries, fiscal reform measures, and increased investment in non-hydrocarbon sectors,” said Acting ESCWA Secretary Mourad Wahba. “Nevertheless, the region remains highly exposed to external imbalances, especially amid continued uncertainty surrounding global tariffs and disruptions to regional trade flows,” he continued.
Growth prospects vary across country groupings. High-income countries are expected to record gross domestic product (GDP) growth rise from 3.3% in 2025 to 4.2% in 2026, supported by economic diversification efforts. Middle-income countries are projected to experience a growth increase from 2.8% in 2025 to 3.3% in 2026, with gradual improvement thereafter despite ongoing debt and inflation challenges. In contrast, low-income countries continue to face severe fiscal and humanitarian pressures, with only a limited recovery expected in 2026 and 2027 following a contraction of 0.9% in 2025.
The report also highlights the humanitarian crisis in Gaza, where reconstruction costs are estimated at approximately $70 billion, amid devastating loss of life and destruction affecting nearly 78% of buildings.
“This year’s edition of the report introduces an innovative approach to analyzing economic outlooks, with ESCWA applying nowcasting models based on machine learning techniques, piloted in Egypt and Saudi Arabia. These models generate near real-time GDP estimates by integrating conventional and unconventional data sources, thereby enhancing analytical accuracy and enabling more timely responses to decision makers’ needs,” Wahba underscored.
The report calls on Arab countries to continue diversifying their economies and reducing reliance on hydrocarbons, strengthen investment 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 underscores the importance of strengthening labour market resilience and creating sustainable employment opportunities amid rapid technological transformation. - TradeArabia News Service
