Economic growth in the southern and eastern Mediterranean (SEMED) region is expected to slow to 2.5 percent in 2026 from 3.1 percent in 2025, before picking up to 4.2 percent in 2027, according to a press release by the European Bank for Reconstruction and Development (EBRD). The forecast appears in the EBRD’s latest Regional Economic Prospects (REP) report. Regional conflict, elevated energy prices and trade disruptions continue to weigh on the outlook. The largest forecast revisions compared with the February 2026 edition of REP are for Lebanon and Iraq. A recovery is anticipated in 2027 across the region.
Conditions were stronger at the start of 2026, with growth picking up in Egypt and Morocco, recovery under way in Lebanon, and continued expansion in Jordan and Tunisia. Iraq’s economy contracted as lower oil production reduced its exports and government revenues. Tourism and remittances have continued to bring foreign currency to the region, helping offset pressures from higher import costs. Conflict in the Middle East has since intensified strains, disrupting trade routes, pushing up energy prices and fuelling inflation. Governments have introduced measures to curb energy demand and shield households and businesses from rising fuel costs.
Egyptian growth is projected to ease slightly from 5.1 percent in 2025 to 4.9 percent in 2026 and 2027, with inflation reaching 15.2 percent in March 2026 and international reserves at US$ 52.8 billion. Iraq’s contraction is expected to deepen from -0.4 percent in 2025 to -1.5 percent in 2026, before rebounding to 4.0 percent in 2027, reflecting disruptions to oil exports following the closure of the Strait of Hormuz. Jordan’s growth is forecast to slow from 2.8 percent in 2025 to 2.6 percent in 2026, with public debt at 108 percent of GDP. Lebanon, after recovering by 3.5 percent in 2025, is expected to contract by 2.0 percent in 2026 before rebounding to 4.0 percent in 2027. Inflation in Lebanon rose sharply to 17.3 percent in March amid higher energy costs.
Morocco’s growth is expected to moderate slightly from 4.6 percent in 2025 to 4.4 percent in 2026 and 4.0 percent in 2027, supported by strong tourism and remittances. The central bank kept its policy rate unchanged at 2.25 percent, while reserves cover close to six months of imports. Tunisia’s growth is projected to slow from 2.5 percent in 2025 to 2.2 percent in 2026 and remain at that level in 2027. The country has a targeted deficit of 6.0 percent of GDP in 2026 and reserves covering around 3.5 months of imports. Egypt and Jordan have implemented multiple steps, including restrictions on public-sector travel and energy use.
The impact of regional tensions is expected to be uneven across SEMED economies. Economies with stronger financial buffers are better positioned to withstand external shocks, while countries exposed to conflict spillovers and financing pressures face greater risks. A prolonged conflict could keep oil and gas prices elevated, weaken investment and tourism, disrupt supply chains and raise borrowing costs. This concern is particularly acute for countries with high debt and large financing needs. Prolonged instability could weaken investment, tourism and trade, while driving up borrowing costs.
