The year 2025 will be remembered as one of shocks and of resilience, a year of uncertainty but also a year of tech boom and record performance. Despite higher tariffs, geopolitical fragmentation and elevated policy uncertainty, global trade and economic activity held up across advanced and emerging economies. Inflationary pressures that many feared did not materialize, financial markets remained largely unperturbed, and a powerful technology boom drove record market performance.
The resilience of the Middle East and North Africa (MENA) region was particularly striking. In addition to global headwinds, several MENA economies faced severe domestic shocks: the escalation of conflict last summer, another year of extreme climate events such as droughts in North Africa, and the continued unwinding of pandemic-era fiscal stimulus. Yet growth held up.
Several factors help explain this outcome. Limited trade exposure to the United States reduced the direct impact of higher tariffs. Higher oil production—following OPEC+ decisions to unwind voluntary cuts amounting to 2.2 million barrels per day since November 2023—supported exporters, while lower energy prices benefited importers. Buoyant remittances, strong tourism inflows and resilient domestic demand further cushioned the blow.
Will it last? As 2026 begins, the key question is whether this resilience can be sustained.
The IMF remains cautiously optimistic. Growth in MENA is expected to firm up to around 3.7 percent in 2026 from 3.2 percent in 2025, supported by higher oil production, robust domestic demand and ongoing reforms. But optimism should be tempered. At least five risks warrant close attention.
First, policy uncertainty rarely bites immediately. A substantial body of empirical evidence, including IMF research, shows that the effects of uncertainty on investment, hiring and consumption often emerge with long lags. If sustained, global uncertainty could reduce world GDP by up to 5 per cent by 2027. Temporary factors such as import front-loading and inventory accumulation may have masked the true impact in 2025. As these effects fade, the drag on global activity and on MENA economies may become more visible.
Second, the artificial intelligence boom has been a powerful offset to this year’s shocks. Elevated equity valuations and large investment flows into AI-related sectors have supported global confidence. Several MENA economies, particularly in the Gulf, led by Saudi Arabia and the UAE, have invested heavily in AI adoption and data infrastructure, leveraging abundant land, capital and relatively cheap renewable energy. But rising concerns about over-exuberance raise the question of how market correction would affect the region.
Third, while inflation is expected to remain subdued and policy rates to decline in major advanced economies, global financial conditions could tighten unexpectedly. MENA countries’ gross financing needs are set to remain at very high levels in 2026. As public debt in advanced economies reaches new highs, higher term premia could push global interest rates up. A reversal of capital inflows would test countries with large refinancing needs and limited buffers.
Fourth, oil markets remain a double-edged sword. In 2025, oil dynamics supported both exporters and importers. Looking ahead, prices could rise if demand for fossil fuels proves stronger than expected or if geopolitical tensions disrupt supply. Conversely, a sharp price decline would strain exporters, even as current account surpluses in GCC countries are already projected to narrow over the medium term. Managing volatility will remain critical.
Finally, geopolitics continues to cast a long shadow. Late-2025 brought tentative signs of progress towards peace and reconstruction in parts of the region, including Syria. But recovery from conflict is fragile and complex. Consolidating peace, rebuilding institutions and securing sustained external support will be decisive for durable recovery.
Against this backdrop, policymakers have little choice but to steer a prudent macroeconomic course in 2026. Today’s momentum offers a window to rebuild fiscal and external buffers, particularly where space is limited. Strengthening fiscal frameworks and reinforcing monetary policy credibility are essential forms of insurance against future shocks.
Over the medium term, structural reforms remain indispensable. Accelerating private-sector development, reducing the dominance of state-owned enterprises, improving financial inclusion and diversifying trade patterns will be key to job creation and inclusive growth. Preparing for the AI era will require investment in digital infrastructure, regulation and human capital. Labor market reforms, especially those addressing youth unemployment, are equally urgent.
The MENA region has demonstrated remarkable resilience. The challenge now is to convert short-term stability into lasting strength. If policymakers succeed in building buffers and modernizing policy frameworks, 2026 may yet be remembered not just as another year of resilience but as a turning point.
