A new report by the United Nations Economic and Social Commission for Western Asia indicates that the Arab region is on a gradual path to economic recovery despite mounting global and regional pressures. Regional growth is forecast to rise from 2.9 percent in 2025 to 3.7 percent in 2026.

The report, Macroeconomic Outlook in the Arab Region, assesses economic trends against a backdrop of heightened global uncertainty driven by escalating geopolitical tensions and tightening financial conditions. These factors, it notes, continue to weigh on efforts to achieve sustainable and inclusive growth.

Inflation across the region is projected to ease from 8.2 percent in 2025 to 5.4 percent by 2027, supported by moderating commodity prices and the gradual normalization of global supply chains. Total exports are also expected to increase, bolstered by stronger non-oil trade.

Acting ESCWA Secretary Mourad Wahba attributed the improving outlook to ongoing diversification efforts, particularly in high-income economies, as well as fiscal reforms and increased investment in non-hydrocarbon sectors. However, he cautioned that the region remains vulnerable to external imbalances, especially amid uncertainty surrounding global tariff policies and potential disruptions to trade flows.

Growth trajectories vary across income groups. High-income countries are projected to see GDP growth accelerate from 3.3 percent in 2025 to 4.2 percent in 2026, supported by diversification strategies. Middle-income economies are expected to grow by 2.8 percent in 2025, rising to 3.3 percent in 2026, despite continued debt burdens and inflationary pressures. Low-income countries, meanwhile, face acute fiscal and humanitarian constraints, with only a modest recovery anticipated in 2026 and 2027 following a projected 0.9 percent contraction in 2025.

The report also highlights the humanitarian crisis in Gaza, where reconstruction costs are estimated at around $70 billion following widespread destruction that has affected nearly 78 percent of buildings and resulted in significant loss of life.

This year’s edition introduces a new analytical framework, with the United Nations Economic and Social Commission for Western Asia piloting machine learning-based nowcasting models in Egypt and Saudi Arabia to produce near-real-time GDP estimates and improve forecasting accuracy.