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The World Bank has recently raised its economic growth forecasts for the Middle East region in 2025, signaling an optimistic outlook amid a somewhat uncertain global environment. The upward revision from previous projections reflects several positive dynamics unfolding across multiple economies within the region, including the easing of oil production cuts, robust private consumption, a rebound in agriculture, and the revival of sectors such as tourism. However, these gains coexist with structural challenges and ongoing geopolitical tensions that continue to cast a shadow over sustained progress.

Revised growth forecasts and regional overview

The World Bank now expects the combined GDP growth for countries in the Middle East, North Africa, Afghanistan, and Pakistan (MENAAP region) to reach 2.8 percent in 2025, an increase from the 2.6 percent forecasted earlier in the year. This improvement is primarily driven by faster-than-anticipated economic activity in Gulf Cooperation Council (GCC) states, where oil-exporting nations benefitted from the accelerated rollback of OPEC+ oil production cuts. At the same time, non-oil sectors in these countries are showing encouraging signs of expansion, contributing positively to overall growth.

Oil-importing countries in the region are also experiencing an improved economic environment. The growth here is fueled by private consumption and increased investment levels, alongside recoveries in agriculture and tourism sectors, which had suffered setbacks during previous years. The easing inflation has further supported consumer spending, enabling a broader-based economic expansion beyond the hydrocarbons sector.

Despite these positive trends, the World Bank’s report points to significant challenges for some developing oil exporters, which are expected to see a slowdown due to conflict-related disruptions and declining oil production. Notably, Iran’s economy is forecasted to contract by 1.7 percent in 2025 and then shrink further by 2.8 percent in 2026, a sharp reversal from earlier growth predictions. The contraction reflects the impact of tighter sanctions, diminishing oil exports, and non-oil sector disturbances exacerbated by ongoing conflicts and geopolitical pressures.

Factors driving recovery in oil-exporting economies

The improved outlook for the Middle East region comes after a relatively muted growth of 1.9 percent in 2024, reflecting slow global growth and regional complexities. The World Bank’s April 2025 update had forecast growth at 2.6 percent for the year, anticipating moderate acceleration driven by the private sector’s increasing role as a driver of innovation, job creation, and broader economic diversification.

The rebound in oil-exporting economies is linked not only to the lift of oil production cuts but also to efforts being made to strengthen non-oil sectors as part of wider economic reform agendas. Meanwhile, oil-importing countries have seen positive momentum in agriculture, thanks to favorable weather conditions and improved productivity, which has helped stabilize food prices and reduce inflationary pressures.

Private consumption has played a critical role in lifting economic activity across the region. As inflationary pressures have softened, consumer confidence has returned. This has enabled increased spending on goods and services, including tourism, which is vital for many MENA economies.

Increased private investments, spurred by improving market conditions and government reforms aimed at enhancing the business environment, have further supported this growth trend.

Climate vulnerabilities

While the growth forecasts have been revised upward, the World Bank underscores the persistent uncertainties and risks facing the Middle East region. Geopolitical tensions, particularly conflicts in some parts of the region, continue to present a significant downside risk to the positive economic trajectory. These conflicts can reverse years of economic progress and impose long-lasting detrimental effects on development.

In addition, climate-related shocks, such as extreme weather events, remain a vulnerability, impacting agricultural output and water availability. The global environment also remains volatile, with fluctuations in oil prices, ongoing global trade tensions, and shifts in monetary policies around the world affecting the region’s economic stability.

Moreover, structural challenges continue to constrain more robust growth. The private sector, despite being identified as a key engine for future growth, still faces barriers such as regulatory constraints, limited access to finance for small and medium enterprises, and issues related to workforce skills and labor market dynamics. Addressing these longstanding challenges is essential for sustaining growth momentum and creating inclusive economic opportunities.

Country-specific highlights

Among individual economies, Egypt is forecasted to grow by approximately 3.8 percent in the fiscal year 2025. This growth is attributed to ongoing fiscal reforms, investment in infrastructure, and stabilizing exports. Morocco is also expected to post solid growth of around 3.4 percent, supported by industrial diversification and improved agricultural output.

Conversely, Iran’s economic outlook remains bleak. The reimposition of United Nations sanctions, alongside other international restrictions, has contracted both oil exports and non-oil activities. Similarly, Libya continues to face economic disruptions due to internal conflicts impacting oil production.

Gulf countries’ early phase-out of oil production cuts has been a major contributor to the positive revisions in regional forecasts. These nations have made strides in developing non-oil sectors. Investments in tourism, finance, and technology are gradually increasing economic diversification.**

Critical importance of a thriving private sector

In its April 2025 economic update titled “Shifting Gears: The Private Sector as an Engine of Growth in the Middle East and North Africa,” the World Bank emphasized the critical importance of a thriving private sector. This sector is vital for unlocking the region’s economic potential. The private sector has the capacity to foster innovation. It can also create jobs and drive productivity gains. This ability is seen as essential for achieving sustainable growth.

To realize this potential, the World Bank highlights the need for extensive reforms. These reforms aim to improve the business climate, strengthen institutions, and foster human capital development. Investments in education, digital infrastructure, and health are necessary. Initiatives to improve governance and reduce bureaucratic hurdles are also essential. These measures will help future-proof the economies of the Middle East against global megatrends.

According to Ousmane Dione, World Bank vice president for the Middle East and North Africa, “Realizing the potential of the region will depend on navigating risks and advancing much-needed reforms.” He acknowledged that some conflict-affected economies show tentative signs of positive change. However, fragility and structural challenges remain deeply entrenched.