EBRD trims MENA growth on Hormuz and war, but lifts Morocco and Tunisia on the drought’s end

The MENA growth story in 2026 comes down to rain, war, and the Strait of Hormuz. The European Bank for Reconstruction and Development (EBRD) cut its outlook for the countries it covers in our region in its September Regional Economic Prospects (pdf) but the damage is concentrated. Iraq’s oil collapse after Hormuz closed and Lebanon’s renewed war with Israel are the main drags, while Morocco and Tunisia get a lift from the end of a multi-year drought. Egypt, Jordan, and Turkey took smaller hits but kept growing.

One caveat before reading the numbers: The EBRD doesn’t cover the GCC, so this is a partial regional picture.

Iraq is such an outlier that the bank strips it out of the regional headline figure. The EBRD’s group of five Mediterranean economies, all net energy importers — Egypt, Jordan, Lebanon, Morocco, and Tunisia — is now expected to grow 3.9% y-o-y in 2026, only 0.2% below what the bank forecast in June. Add Iraq, and you have a 0.7% contraction, down from a 2.5% growth forecast.

This is because Iraq is now expected to see a 12% contraction, almost eight times the 1.5% contraction predicted in the latest forecast from June. Iraq’s alternative export routes are carrying less than a quarter of pre-war oil volumes since Hormuz closed, and interrupted Iranian gas supplies have worsened power shortages. With oil funding more than 90% of government revenue, Baghdad is borrowing at home to plug the gap and drawing from foreign reserves, which fell to USD 83 bn from USD 97 bn between January and June. And the bank warns the contraction could deepen if the disruptions drag on.

Lebanon is the other hopeless case. The economy is expected to shrink by 5%, compared to June’s forecast of a 2% contraction. Renewed fighting with Israel added damage on top of an existing USD 11 bn reconstruction bill. Some 360k people remained displaced in August, and inflation, which doubled to around 20% in April, was still 15.7% in July.

Turkey, which the EBRD covers as a standalone economy rather than under its Mediterranean grouping, is the third casualty. It is expected to grow at 3%, although that’s down from 3.5%. High inflation and tight credit weakened spending at home. Exports fell 3.4% in the second quarter, inflation edged up to 31.5% in August, and reserves dropped USD 71 bn between January and June before partly recovering. The bank flags a risk that a weaker TRY would leave Turkish companies struggling to repay their dollar and euro debts.

Egypt and Jordan took smaller hits but kept growing. Egypt (4.6%, down from 4.9%) remains among the region’s fastest growing markets. Remittances and tourism receipts rose to USD 16.9 bn and reserves hit a record USD 56.3 bn, though gas output shrank for a 16th straight quarter and interest payments now absorb 88% of government revenue. Jordan saw the smallest downward revision in the region (2.5%, down from 2.6%) despite initial troubles in its tourism sector.

Morocco and Tunisia got the only upgrades in the region. Morocco is expected to grow at 4.8% (up from 4.4%), while Tunisia would grow at 2.4% (from 2.2%). The end of a multi-year drought did the work. In Morocco, farm output rose 18.4% in the 1Q, offsetting weaker investment. Inflation averaged just 0.5% in 1H and the government is holding its 3.4% deficit target. In Tunisia, Agriculture and food processing sectors helped, despite shrinking chemicals and textiles output, rising energy import bill and falling reserves.

What’s next: The 2027 rebound hinges on Hormuz reopening. The EBRD pencils in 14% growth for Iraq and 7.1% for the Mediterranean group next year, but only if trade disruptions clear by early in the year. Meanwhile, Morocco’s growth is expected to decelerate in 2027, growing at 3.9% once the harvest bounce runs its impact.