Middle East and Central Asia (ME&CA) region’s real gross domestic product (GDP) growth is projected at 2.4% for 2024. The geopolitical landscape, coupled with ongoing conflicts and extended production cuts by the Organisation of the Petroleum Exporting Countries Plus (OPEC+), continues to hamper economic recovery. However, the region remains optimistic that 2025 will mark a period of growth and stability.

According to the IMF’s January 2025 Regional Economic Outlook, ME&CA growth is expected to recover from 2.0% in 2023 to 2.4% in 2024 and 3.6% in 2025, as temporary disruptions to oil production and shipping diminish. Inflation is expected to decline from 15.6% in 2023 to 14.6% in 2024 and further to 10.7% in 2025.

Saudi Arabia’s economy contracted by 0.8% in 2023 due to production cuts but is forecast to grow by 1.4% in 2024 and 3.3% in 2025. United Arab Emirates (UAE) is set to sustain steady growth, rising from 3.6% in 2023 to 5.1% in 2025. Egypt’s growth will slow from 3.8% in 2023 to 2.4% in 2024 before rebounding to 3.6% in 2025.

In Central Asia, Kazakhstan, the region’s largest economy, will see growth dip from 5.1% in 2023 to 4.0% in 2024, recovering to 5.5% in 2025. With a population of 20.29 million, Kazakhstan’s unemployment rate stands at 4.8%.

IMF projections assume stable national policies and oil prices averaging $81.29 per barrel in 2024 and $72.84 per barrel in 2025. Growth for oil-exporting countries depends on the expiration of voluntary production cuts and reduced geopolitical tensions. Prolonged uncertainty could hinder recovery.

The IMF also warns of risin geoeconomic fragmentation, with shifting trade patterns and declining financial market efficiency. High debt levels present additional challenges for many ME&CA nations.

Geopolitical tensions and OPEC+ influence

Ongoing conflicts and prolonged OPEC+ oil production cuts have strained economic stability in oil-exporting nations. Growth could accelerate by 1.7 percentage points in 2025 if cuts end and conflicts ease.

Jihad Azour, IMF ME&CA director, warned of rising risks from conflict in Lebanon, Sudan, and broader Middle East instability, affecting tourism, trade and oil markets. He emphasised the need for reforms to mitigate high debt and ensure financial stability.

The IMF noted robust growth in the Central Asia (CCA), reaching 4.3% in 2024 and 4.5% in 2025, though trade and remittance slowdowns pose risks. Disinflation continues across Middle East and North Africa and CCA, but elevated inflation persists in some countries.

Ending OPEC+ cuts would boost Gulf Cooperation Council (GCC) economies, especially Saudi Arabia and the UAE. However, declining oil prices and increased production may lead to fiscal deficits. Diversification into non-oil sectors is expected to support long-term growth.

Reforms to boost economic resilience

Reducing trade barriers, enhancing competition in the banking and financial sectors, and boosting infrastructure investment are essential to strengthening economic resilience. Additionally, governance reforms, particularly in countries with high levels of state-owned enterprises, will be crucial for enhancing medium-term growth prospects.

Despite global economic challenges, GCC countries have outperformed other regions due to significant diversification efforts in real estate, tourism and technology sectors. The GCC is a regional, intergovernmental, political and economic union comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE. Challenges persist, including rising geopolitical tensions and the risk of a sudden correction in global oil prices.

For non-GCC countries—including Algeria, Iran, Iraq, Libya and Yemen—the IMF stressed the importance of fiscal consolidation and improved social protection systems. High debt levels, particularly in low-income countries and ongoing conflicts pose serious risks to the region’s recovery.

Regional risks and asset quality

Credit rating agencies Moody’s and S&P Global Ratings highlighted the economic challenges facing the ME&CA region, including the GCC. Moody’s maintained a stable outlook for GCC countries, noting strong asset quality in the banking sector supported by non-oil sector growth. However, rising geopolitical risks, including tensions between Israel and Iran, pose concerns for regional stability.

Moody’s also pointed out that fiscal and current account deficits in Saudi Arabia could be impacted by lower oil prices, though reforms in taxation, labour and immigration will strengthen economic resilience. Capital will remain stable, despite potential increases in risk-weighted assets. Declining interest rates may pressure bank profitability, but banks are expected to maintain strong liquidity buffers.

S&P Global Ratings identified external debt dependency and geopolitical risks as key concerns. It forecasts modest improvements in GCC banks’ asset quality as interest rates decline, though credit losses are expected to remain elevated in Egypt. Fiscal discipline is crucial for managing external debt in Bahrain, Saudi Arabia and Tunisia.

S&P also highlighted that global geopolitical conditions, such as the Israel-Hamas and Russia-Ukraine conflicts, could continue disrupting supply chains and commodity production into 2025.

Kazakh banks maintain strong profitability despite retail risks

Kazakhstan’s banking sector is expected to remain profitable through 2025, driven by high-margin lending and elevated interest rates, despite regulatory and tax pressures, Fitch Ratings reports.

The European Bank for Reconstruction and Development forecasted slower regional growth, from 5.7% in 2023 to 4.7% in early 2024, due to mining stagnation in Kazakhstan and Uzbekistan, with a rebound to 5.9% by 2025.

Kazakhstan’s central bank raised its base rate to 15.25% to curb inflation, projecting 4% to 4.5% GDP growth in 2024. Lending remains strong, mortgage recovery is expected late 2024, and savings have shifted to tenge-denominated deposits.

Path to recovery and sustainable growth

The ME&CA region faces persistent challenges, including political instability, rising debt and oil price volatility, despite expected growth in 2025. Structural reforms, economic diversification and governance improvements are crucial for long-term stability. Resolving conflicts and easing global tensions will be essential for fostering a resilient, sustainable future.