The Middle East and North Africa’s (MENA) economy is set for a sharper contraction in 2026, with real gross domestic product (GDP) expected to shrink 3%, according to BMI, a Fitch Solutions company.
The forecast marks a significant deterioration from BMI’s previous projection of a 0.9% contraction and its pre-conflict forecast of 4% growth.
BMI expects Iraq, Kuwait, Bahrain, and Qatar to record the steepest contractions in 2026, with GDP projected to shrink by 19.4%, 20.5%, 16.1%, and 12.4%, respectively. Saudi Arabia is also expected to contract by 1.3%, while the UAE is forecast to post modest growth of 0.3%, supported by stronger oil production and its ability to partially bypass Strait of Hormuz disruptions.
The regional downturn comes as economies across MENA contend with weaker trade, disrupted shipping and heightened uncertainty around investment and economic activity.
BMI expects the region to rebound in 2027, with growth reaching 8.1% as hydrocarbon production recovers and trade, services and reconstruction activity improve.
Egypt’s growth outlook
Egypt enters the period with its economy already gaining momentum. Real GDP grew 4.4% in FY2024/25, compared with 2.4% a year earlier, according to the IMF In its July 2026 World Economic Outlook Update. Growth accelerated to 5.3% year on year in the first quarter of FY2025/26, supported by non-oil manufacturing, transportation, finance and tourism.
The IMF forecast Egypt’s economy will grow 4.6% in 2026, up 0.4 percentage points from its previous projection. The IMF attributed the upgrade partly to stronger-than-expected economic performance.
The IMF has also said Egypt’s policy response has helped mitigate the effects of regional developments and preserve macroeconomic stability.
Stronger external position
Egypt’s external accounts have improved alongside its economic recovery.
The IMF reported that the current account deficit narrowed to 4.2% of GDP in FY2024/25, supported by higher remittances and tourism receipts. Foreign direct investment also strengthened, while external issuances and record nonresident inflows into domestic debt markets supported market confidence.
Tourism and remittances remain important sources of foreign currency, while a recovery in trade and shipping could provide an additional boost to the country’s external position.
Suez Canal recovery
The Suez Canal remains central to Egypt’s trade and foreign-exchange outlook.
The Red Sea crisis led to a significant decline in canal traffic and revenues as ships diverted around the Cape of Good Hope. Disruptions around the Strait of Hormuz have further highlighted the vulnerability of global shipping routes to regional developments.
According to BMI, a diplomatic agreement to reopen the Strait of Hormuz remains its baseline scenario for the third quarter of 2026. However, the firm warned that traffic is likely to remain “stop-start and vulnerable to disruption,” while the risk of renewed military escalation remains elevated.
For Egypt, a recovery in regional shipping would support Suez Canal activity and foreign-exchange revenues. In its latest review of Egypt’s economy in July, the IMF identified a faster recovery in Suez Canal traffic as an upside risk to the country’s growth outlook, fiscal position and external accounts.
has identified a faster recovery in canal traffic as an upside risk for Egypt’s growth, fiscal position and external accounts.
A sustained recovery could also reinforce Egypt’s role as a logistics and trade hub connecting Europe, Asia, Africa and the Middle East.
Investment potential
According to the IMF, shifts in regional supply chains could create opportunities for Egypt to attract investment as companies reassess manufacturing, logistics and distribution locations.
The extent to which Egypt can capitalize on those opportunities will depend on continued economic reform, infrastructure investment and the government’s ability to accelerate private-sector-led growth while maintaining macroeconomic stability.
However, converting these advantages into investment will depend on continued reforms. The IMF has highlighted the need to expand private-sector-led growth, improve competition, advance the government’s divestment program and strengthen the investment environment.
Regional recovery
BMI expects MENA’s economy to rebound sharply in 2027, with growth reaching 8.1%, supported by recovering hydrocarbon production, stronger trade and services activity and post-conflict reconstruction.
For Egypt, a broader regional recovery could support trade, tourism, investment and logistics. Its improving growth trajectory and external position provide a stronger starting point, while the Suez Canal and its geographic location could offer additional opportunities as regional trade conditions normalize.
The extent to which Egypt can capitalize on those opportunities will depend on infrastructure investment, greater private-sector participation and continued economic reform.
