Middle East economic outlook dims amid turbulent start to 2024

January 2024 Al-Monitor Trend Report 

2,572 words

Heading into 2023, Middle East economies were riding high after the region posted a 5.6% growth rate over the prior year, making it a global bright spot in a generally gloomy environment clouded by recession fears. A year later, the Middle East again stands out as an outlier but for the opposite reason, as the escalating Israel-Hamas war teeters on the brink of producing widespread economic pain.

This comes as the International Monetary Fund (IMF) said on Jan. 30 that the global economy is approaching a soft landing while upgrading its 2024 growth forecast to 3.1%, up 0.2 percentage points from its October projections. Simultaneously, the IMF pared its Middle East and North Africa (MENA) forecast 0.5 percentage points to 2.9%, a revision mainly attributable to Saudi Arabia and reflecting lower oil production in 2024.

This comes as 2023’s tumultuous end has given way to an increasingly turbulent start to 2024 in the Middle East, with hostilities infecting the Red Sea and the threat of a direct US-Iran confrontation growing after a deadly drone attack on American troops in Jordan on Jan. 28. That’s giving real shape to the feared threats posed by a broader conflagration. The outlook for MENA is currently highly uncertain, notes the IMF, as a spreading conflict and intensifying Red Sea disruptions could have a severe impact, including on trade and tourism. Despite a staggering human toll and geopolitical uncertainty, the Gaza war’s economic fallout has largely been contained to directly adjacent countries, but that’s little comfort to Jordan, Egypt and Lebanon: Across three months, this war has likely cost these vulnerable economies $10.3 billion, or 2.3% of their GPD, while 230,000 people in these countries are now expected to fall into poverty, according to a United Nations Development Programme assessment.

Despite sunnier global forecasts, this war poses major threats to a world still shaking off successive shocks dating back to the pandemic, with the IMF singling out ongoing Houthi attacks on Red Sea shipping as a major downside risk imperiling this broader recovery, among others. Against that backdrop, Middle East turbulence continues to preoccupy decision-makers. That was on full display in January at Davos, where all roads led to the Middle East, as Al-Monitor was on hand to document. Closer to home, we continue tracking essential regional storylines emerging at this moment, outlined below.