BEIRUT: The United Nations Economic and Social Commission for Western Asia said the Arab region’s economy is projected to expand 3.7% in 2026, accelerating from an estimated 2.9% in 2025, as parts of the region extend a gradual recovery while facing intensifying external pressures. The forecast was published in ESCWA’s “Macroeconomic Outlook in the Arab Region,” which sets out regional projections alongside a breakdown by country income groups and a review of near-term constraints affecting growth and stability.
ESCWA said the outlook is framed by a global environment of elevated uncertainty, citing escalating geopolitical tensions and growing financial pressures that it said are weighing on efforts to achieve sustainable and inclusive growth. The report’s baseline projection points to stronger overall momentum in 2026 than in 2025, while underscoring that the region remains exposed to external shocks and imbalances. ESCWA said the pace and durability of the recovery vary across economies, reflecting different fiscal conditions, financing access, and progress in diversification.
The report said regional inflation is expected to decline from 8.2% in 2025 to 5.4% by 2027, attributing the easing to lower commodity pressures and the normalization of supply chains. ESCWA also said total exports are projected to grow, supported by an expansion in non-oil exports. Acting ESCWA Secretary Mourad Wahba said the improvement is underpinned by diversification, fiscal reforms, and higher investment in non-hydrocarbon sectors, while warning of continued uncertainty around global tariffs and trade flow disruptions.
Growth outlook by income group
ESCWA said high-income Arab economies are expected to see GDP growth rise from 3.3% in 2025 to 4.2% in 2026, with activity supported by diversification efforts and increased investment outside hydrocarbons. Middle-income economies are projected to increase from 2.8% growth in 2025 to 3.3% in 2026, with ESCWA describing a gradual improvement thereafter alongside persistent challenges linked to debt burdens and inflation. The report said these differences contribute to an uneven regional picture despite a higher aggregate growth rate.
In contrast, ESCWA said low-income countries continue to face severe fiscal and humanitarian pressures, with only a limited recovery expected in 2026 and 2027 after a 0.9% contraction in 2025. The report highlighted the humanitarian crisis in Gaza, estimating reconstruction costs at about $70 billion and citing destruction affecting nearly 78% of buildings, alongside heavy loss of life. ESCWA also underscored the importance of strengthening labor market resilience and expanding sustainable employment as technology reshapes work.
New analytical approach and policy priorities
ESCWA said this year’s edition introduces nowcasting models based on machine learning techniques, piloted in Egypt and Saudi Arabia, to generate near real-time GDP estimates. The commission said the models integrate conventional and unconventional data sources to enhance analytical accuracy and support more timely economic assessments. ESCWA presented the approach as part of its effort to improve the monitoring of fast-moving conditions and to better inform responses to emerging shifts in growth, prices, and external balances.
The report called on Arab countries to continue diversifying their economies and reducing reliance on hydrocarbons, while strengthening investment in human capital, technology and digital transformation. ESCWA also urged improvements in public financial management and domestic revenue mobilization, and said aid and investment flows should be aligned more closely with national priorities, particularly in conflict-affected countries, as governments navigate uneven recovery conditions and persistent vulnerabilities. The report was issued by ESCWA. – By Content Syndication Services.