Iraq is a key player.. Moody’s: Oil countries to lead growth in the Middle East through 2025
Iraq is a key player.. Moody’s: Oil countries to lead growth in the Middle East through 2025
2025-01-17 01:18
Shafaq News/ Moody’s credit rating agency expected that the Middle East and North Africa countries would lead economic growth during the current year, supported by the recovery of oil production and the progress of investment projects.
The agency estimated that economic growth in the Middle East and North Africa region would accelerate to 2.9% in 2025, compared to estimates of about 2.1% for 2024.
The acceleration was attributed to stronger growth among oil-exporting countries in the region, as a result of the partial decline in oil production cuts under the OPEC+ agreement, and non-oil investments as part of efforts to diversify the economy will support economic growth, according to a report reviewed by Al Arabiya Business .
Real GDP growth in the region’s oil-exporting countries is expected to rise to 3.5% in 2025, compared to an estimate of 1.9% for 2024, as increased oil production contributes to raising the overall growth rate by about 0.5% this year.
This is due to Iraq, Saudi Arabia, the UAE, Kuwait and Oman starting to abandon some of the oil production cuts implemented in 2023, and will also reflect higher production in the UAE as a result of the agreed increase in the country’s core quota under OPEC+, which will be gradually implemented during 2025.
During 2023 and 2024, oil production cuts reduced growth in oil-exporting countries by more than 3% during both years.
Challenges of increasing production
But Moody’s noted that there are challenges facing increased oil production due to slower demand growth among major importers, especially China, and increased oil production outside OPEC+, especially in the United States.
In December 2024, OPEC+ announced a three-month postponement of its planned production increase to April 2025.
Non-oil economy
The agency expected that non-oil economic activity would remain strong in the Middle East and North Africa region, supported by favorable winds from structural reforms and large-scale investment projects, including government initiatives for economic diversification.
Iraq
The agency confirmed that if Iraq maintains stable security conditions, non-oil sector growth will remain above pre-pandemic averages, due to the gradual implementation of several transport and energy projects, including the $17 billion Iraqi Development Road project, equivalent to 6.5% of GDP, which is a network of railways, roads and ports linking Asia and Europe.
Saudi Arabia
The impact of large investments is most evident in Saudi Arabia, where government spending and sovereign wealth fund spending linked to the Vision 2030 diversification programme will continue into 2025, she said.
She pointed out that the projects are gradually entering the implementation phase, which supports strong growth in the construction, real estate and non-oil mining sectors. She also expected strong growth in the retail and hospitality sectors, supported by investment projects related to tourism.
Qatar
In Qatar, growth will be supported by the development of the petrochemical industry and construction activities related to the expansion of LNG production capacity, scheduled to come on stream between 2026 and 2030.
Kuwait
In Kuwait, non-oil growth will be driven by major projects such as the construction of a new port and airport terminal.
The UAE
In the UAE, non-oil growth will slow slightly due to the completion of some earlier infrastructure projects, but will remain strong at around 5% in 2025.
Structural reforms since 2020, including easing foreign ownership restrictions, introducing long-term residency permits, and lifting some social restrictions, have boosted the country’s attractiveness as a global hub for trade, transport, tourism, and financial services.
Moody’s said these factors will boost strong private sector activity in 2025, including the real estate sector.
Diversification programmes, such as the Abu Dhabi Industrial Strategy, also support growth in niche sectors that benefit from industrial localization and high-tech innovation, including artificial intelligence.
Oil importing countries
Despite the strong momentum for reform and investment, growth in MENA oil importers in 2025 will be similar to the 2.3% estimate for 2024, according to Moody’s.
The agency indicated that this rate is much lower than the average for the period 2015-2019, which amounted to 3.9%, mainly due to the slowdown resulting from the ongoing political adjustments in Turkey and Egypt, in addition to the economic turmoil associated with the military conflict in Israel and Lebanon.
Türkiye
In Turkey, the region’s largest economy, growth will slow further in 2025, as authorities commit to lowering inflation. Higher interest rates and tighter fiscal policies will help rebalance the economy away from excessive and unsustainable domestic demand, helping to control inflation.
Tunisia
In Tunisia, growth is expected to improve slightly after a protracted recovery from the pandemic, but tight financing conditions and weak investment will continue to constrain economic activity.
Jordan and Egypt
In Jordan and Egypt, projected growth in 2025 depends on conflicts not escalating in neighbouring areas.
In Jordan, large projects financed by foreign direct investment, including from the GCC countries, are approaching the construction stage and will support growth, but the greatest impact will be seen from 2026.
In Egypt, the positive outlook for growth in 2025 is based on the recovery of Suez Canal revenues, which fell by more than 75% in 2024 due to Houthi attacks in the Red Sea, resulting in a loss of more than 1% of the GDP growth rate.
Climate change and Morocco
In Morocco, climate-related investments have become a major economic driver, supporting the country to achieve strong growth of 4.0% in 2025, above the average before the COVID-19 pandemic.
This is supported by Chinese companies investing in multi-billion dollar projects related to electric vehicle (EV ) batteries, which enhances the country’s existing auto manufacturing infrastructure.
Support from development financial institutions is also helping Morocco become a regional leader in renewable energy, according to Moody’s.
In 2024, Morocco received a $1.3 billion resilience and sustainability facility, equivalent to 1% of GDP, from the International Monetary Fund to support reforms and investments related to climate change.
Accelerating diversification of energy sources
Clean and renewable energy is a key area of investment for many countries in the region, and although much of the region still lags behind the rest of the world in reducing dependence on fossil fuels, recent investments are helping to gradually reduce the carbon footprint.
For oil importing countries such as Jordan, Morocco and Turkey, this means reducing dependence on costly imports, reducing external exposure risks.
For oil-exporting countries, renewable energy projects represent an opportunity to mitigate some of the risks associated with the long-term carbon transition by developing green alternatives to energy-intensive industrial sectors such as steel, aluminum and cement.
There is already significant solar and wind power generation capacity in Jordan, Morocco, Turkey and the UAE, and several large solar power plants are nearing completion or entering operation in Saudi Arabia, the UAE, Oman, Iraq and Kuwait, adding 2%-5% to the current power generation capacity in these countries.
Oman launched its green hydrogen strategy in late 2022 and aims to produce 1.4 million tons annually by 2030 through eight projects funded by $49 billion in foreign direct investment, equivalent to 46% of GDP.
In the UAE, the Barakah Nuclear Power Plant will enter full service in late 2024, contributing about 20% of the country’s electricity generation capacity. In addition, hydroelectric power plants in Turkey produce about 20%-30% of the country’s total electricity production.
Egypt and Morocco have initiated projects to build transcontinental transmission lines, including the EuroAfrica project linking Egypt to southern Europe, and the proposed Xlinks Power project between Morocco and the United Kingdom.
Fiscal deficit
Moody’s said that public finance reforms will support an improvement in the fiscal balance in Jordan and Morocco, as well as debt burdens.
In Turkey, fiscal tightening will largely be driven by the phasing out of spending related to the devastating 2023 earthquake, as well as a number of new revenue-boosting measures adopted in 2024.
The primary balance (the difference between revenues and expenditures excluding debt interest) is expected to turn positive in 2025, and the overall fiscal deficit is expected to decline to 3% of GDP compared to 5% of GDP estimated for 2024.
It is expected that Turkey’s debt burden will remain among the lowest in the region, at less than 30% of GDP.
“Challenges will remain in achieving fiscal balance in Tunisia and Egypt, and risks of external exposure and government liquidity will remain high,” she said.
She noted that in Tunisia, the deficit will remain high at around 6% of GDP, despite the continued focus on increasing tax revenues and reducing the wage bill in real terms.
She said that relying on domestic financing and resorting to direct monetary financing, as is the case in 2024, will increase risks to financial stability.
She explained that Tunisia’s expectations do not include a new IMF program, which would reduce refinancing risks and provide stability to the financial path, attributing this to the lack of political consensus in the country.
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