War puts regional growth on the path to a contraction

It’s not all bad news for regional growth prospects this year, with chances in sectors like AI offering some light to offset the gloom cast by the conflict across our region. Globally, growth has only been shaved down to 2.5% from 2.6% at the start of the year.

Growth in our neck of the woods is likely to trail global averages, according to the World Bank’s latest Global Economic Prospects report (pdf). Output for the Middle East, North Africa, Afghanistan, and Pakistan region is now set to contract by 2.1% this year, reversing last year’s 3.3% expansion.

Within the GCC, the effects will be starker, as economies are set for a 4.3% contraction, according to the World Bank. GCC growth projection came in at 4.4% for this year back in January. The UAE is set for a 1.6% contraction, 2% is penciled in for KSA, and Qatar is staring down a 20.9% decline.

Surprising exactly no one, the war has been the biggest dampener of growth after it cut off the export route for one-fifth of oil and LNG. Effects weren’t limited to depleted oil revenues, but also put the brakes on other sectors that had been showing strong indicators of growth, such as tourism, logistics, and aviation, while also weighing on business sentiment and driving food inflation.

The picture is also fragmented: Alternative export routes for KSA, the UAE, and Oman helped offset some of the oil revenue losses. On the flip side, oil-importing economies have avoided much of the brunt exporters faced and are set to see growth rates rise to 4.3%, up from 3.9% last year.

Could AI be the saving grace? The World Bank sees AI as transformative, but notes a massive schism within the region when it comes to who is positioned to catch the upside as it stands (the UAE and KSA), and countries like Egypt, Morocco, Pakistan, and Tunisia, which are home to growing digital ecosystems and readiness gaps simultaneously. Lagging regulation and the current lack of Arabic-trained AI models also risk hampering the region from reaping the benefits of AI.

Regional cooperation on AI is the region’s biggest, and yes, most untapped, opportunity, according to the report, which sees pooling resources, compute capacity, and government frameworks as leading to a more broad-based benefit.

The outlook: Heightened uncertainty, higher interest rates leading to less financial space for regional entities, and inflationary pressure are all downside risks to watch out for. If the regional geopolitical situation stabilized by the end of the year, growth would rebound to 7.8% for 2027.

But that comes with a caveat: The World Bank flags that any such growth would be chalked up to restored oil exports rather than an uptick in productivity, stressing the need for better regional resilience to hedge against future crises.

THE CLOSING BELL-

The EGX30 fell 0.1% at Wednesday’s close on turnover of EGP 7.6 bn (33.4% below the 90-day average). Local investors were the sole net buyers. The index is up 27.3% YTD.

In the green: Orascom Construction (+4.0%), Abu Qir Fertilizers (+4.0%), and Fawry (+1.8%).

In the red: Alexandria Containers and goods (-2.8%), Eastern Company (-2.7%), and GB Corp (-2.4%).