Middle East economic expansion defies global recession fears

The global economy teeters on the edge of a recession, with UN Trade and Development (Unctad) forecasting a mere 2.3 per cent growth in world gross product for 2025, below the 2.5 per cent threshold signalling a recessionary phase.

The agency’s latest “Trade and development foresights 2025” report paints a grim picture of escalating trade tensions, unprecedented policy uncertainty, and disrupted supply chains triggered by President Donald Trump’s tariff barrage. However, the Middle East emerges as a symbol of resilience, with Unctad projecting 3.2 per cent regional growth, driven by rising oil production and strategic economic policies, despite the ongoing Gaza conflict’s ripple effects.

However, the Middle East’s economic buoyancy contrasts sharply with the global slowdown, which marks a significant deceleration from pre-pandemic averages.

The UAE, a regional powerhouse and the Arab world’s second-largest economy, is expected to grow by 3.8 per cent, per World Bank forecasts, driven by tourism, real estate, and financial services. Saudi Arabia, the largest Arab economy, leads the region with a projected 3.5 per cent expansion in 2025, fuelled by increased oil output under Opec+ agreements. The kingdom’s Vision 2030 diversification efforts, including $1 trillion in non-oil projects, bolster growth, with the IMF estimating non-oil GDP growth at 4.5 per cent in 2024.

Qatar’s LNG expansion further supports the region’s outlook, with a projected 2.8 per cent growth.

Turkiye, straddling Europe and the Middle East, is forecast to achieve 2.9 per cent growth, propelled by monetary easing, robust public spending, and a competitive exchange rate boosting exports. Despite inflationary pressures — consumer prices hit 49 per cent in early 2025, per Turkey’s central bank — export growth to the EU and Gulf states, valued at $260 billion in 2024, sustains momentum. However, the Gaza conflict, displacing over 1.9 million Palestinians and costing $20 billion in damages per UN estimates, casts a shadow, disrupting trade routes and investor confidence in neighboring Jordan and Lebanon.

Unctad warns that global trade policy uncertainty, at its highest this century, is stifling investment and hiring. US tariff threats, including proposed 25 per cent levies on imports, have already disrupted supply chains, with global trade growth projected to slow to 1.8 per cent in 2025 from 2.5 per cent in 2024. The report highlights a surge in financial volatility, with the VIX index spiking to 25 in Q1 2025, reflecting investor unease.

Developing nations, particularly low-income economies, face a “perfect storm” of rising debt — global public debt reached $97 trillion in 2024, per the IMF — and deteriorating external financial conditions.

The Middle East, however, benefits from its strategic role in global energy markets. Oil prices, though volatile at $65 per barrel (S&P Global estimate), support fiscal stability in GCC countries, where breakeven prices range from $55 (Qatar) to $85 (Saudi Arabia), according to Bloomberg Economics. Yet, prolonged trade disputes could depress demand, risking a further price drop that might strain fiscal balances.

Unctad stresses the growing importance of South-South trade, which accounts for one-third of global trade, valued at $5.5 trillion in 2024. For the Middle East, intra-regional trade, particularly within the GCC, has surged, with non-oil trade among members rising 15 per cent to $150 billion in 2024, per GCC Statistical Center. Agreements like the UAE-India Comprehensive Economic Partnership, boosting bilateral trade to $85 billion, exemplify the potential of South-South integration. Turkiye’s trade with GCC countries, up 20 per cent to $30 billion, further underscores this trend.

Unctad calls for urgent dialogue and stronger regional coordination to counter global headwinds. In the Middle East, initiatives like the Arab League’s Greater Arab Free Trade Area, covering 18 nations, aim to enhance intra-regional commerce, though political tensions hamper progress. The GCC’s unified economic policies, including a planned customs union by 2027, offer a model for resilience. Globally, Unctad advocates for coordinated action to restore confidence, warning that without it, development goals, including the UN’s 2030 Agenda, are at risk.

The Middle East’s 3.2 per cent growth projection for 2025 highlights its ability to navigate global challenges, leveraging oil wealth and diversification. Saudi Arabia’s $800 billion in sovereign wealth fund assets and the UAE’s $1.5 trillion in foreign investments provide buffers against volatility. However, risks persist: a deeper global recession or prolonged Gaza conflict could disrupt trade and investment flows. For now, the region’s focus on South-South trade and domestic reforms positions it to defy the global downturn, offering lessons for other developing economies facing an uncertain future.