EBRD lowers SEMED growth outlook as Iraq and Lebanon drag on regional economy

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EBRD lowers SEMED growth outlook

Highlights

EBRD lowers its 2026 SEMED regional growth forecast due to a projected 12.0 per cent contraction in Iraq and a 5.0 per cent decline in Lebanon amid conflict and export disruptions.
Egypt's economy is set to grow 4.6 per cent in 2026 and 5.0 per cent in 2027, buoyed by strong remittances, tourism receipts, and an IMF programme review, with international reserves at record levels.
Morocco is forecast to grow 4.8 per cent in 2026 before moderating to 3.9 per cent in 2027 as robust agriculture offsets weaker industry, while Tunisia faces fiscal pressure despite 2.4 per cent growth.

Regional forecast reflects conflict and export disruption

As reported by European Bank for Reconstruction and Development in its latest Regional Economic Prospects report, the weaker 2026 forecast is driven mainly by a sharp downturn in Iraq after oil export disruptions through the Strait of Hormuz and by an expected recession in Lebanon amid renewed hostilities.

Growth across the SEMED region excluding Iraq is forecast at 3.9 per cent in 2026 and 4.3 per cent in 2027. The bank says regional tensions continue to weigh on economies through higher energy costs, disrupted trade routes and greater uncertainty, worsening fiscal and external vulnerabilities in several markets.

Iraq's economy is expected to contract by 12.0 per cent in 2026 before rebounding by 14.0 per cent in 2027, assuming oil exports normalize. Lebanon's economy is expected to shrink by 5.0 per cent by the end of 2026 and then grow by 4.0 per cent in 2027 if a sustained ceasefire is achieved and damaged infrastructure is repaired.

Egypt, Morocco and peers show relative resilience

Egypt's economy is forecast to grow by 4.6 per cent in 2026 and 5.0 per cent in 2027, supported by communications, trade and petroleum refining. Remittances and tourism receipts rise strongly in the first quarter of 2026, and Egypt completes the seventh review of its IMF-supported programme in July 2026, while international reserves reach record levels.

Jordan's growth is expected to slow to 2.5 per cent in 2026 before recovering to 2.8 per cent in 2027, provided trade bottlenecks ease and energy prices decline. International reserves remain at more than eight months of import cover, helping preserve macroeconomic stability despite pressure from higher fuel prices and uncertainty around tourism and investment flows.

Morocco is forecast to grow by 4.8 per cent in 2026 before moderating to 3.9 per cent in 2027, with stronger agricultural output offsetting weaker industry and construction. Tunisia is projected to grow by 2.4 per cent in 2026 and 2.3 per cent in 2027, as improved agricultural production supports activity but higher commodity prices, a larger energy import bill and trade policy uncertainty continue to pressure public finances.

Our earlier coverage of market jitters driven by rising oil prices and persistent geopolitical tensions explained how higher energy costs and conflict risks were feeding inflation concerns and keeping investors cautious. We also noted how diplomatic efforts and key macro signals—such as bond yield moves and upcoming economic data—were being closely watched for clues on growth and market direction.

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