Economics & Development

Economic activity accelerated and reforms advanced in the second half of 2025. However, Lebanon has been significantly affected by the escalation of the conflict in the Middle East since February 2026, which is expected to weigh heavily on economic activity. Risks are tilted sharply to the downside, and the 2026 outlook remains highly uncertain, contingent on the scale, intensity, and duration of the conflict.

Economic activity remained resilient in H2-2025, supported by manufacturing and construction. Inflation remained low and stable, supported by prudent monetary policy and exchange rate stability. Following high pre-election spending and mounting interest costs, fiscal pressures are intensifying. Strengthening fiscal sustainability and accelerating economic transformation is critical to creating more and better jobs and reducing poverty.

Growth will recover modestly over the medium-term and remains insufficient to meaning fully improve jobs and poverty outcomes. Although poverty declined by about 6 percentage points since 2014, close to 60 percent of South Africans live below the upper-middle-income poverty line, while unemployment remains above 30 percent. With public debt nearing 80 percent of GDP, sustaining fiscal credibility while improving efficiency and impact of public spending remains critical.

Real GDP growth stood at 4.5 percent in 2025, driven by strong gold exports and improved fuel availability. Election-related expenses widened the primary fiscal deficit to 4.6 percent, raising debt. High debt service, limited donor support, unforeseen security spending, and weak public financial management constrain government spending on wages and essential services. Extreme poverty rates, at over two-thirds of the population, are high and persistent.

In 2025, GDP growth is estimated at 6.7 percent, driven by new oil and gas production and agriculture. Low inflation at 1.4 percent and the rebound in agriculture are estimated to have reduced poverty to 36.2 percent. The fiscal deficit declined sharply to 8.1 percent of GDP supported by GDP growth. Senegal’s economic outlook is constrained by debt sustainability risks and the conflict in the Middle East.

Real output grew 5.6 percent in 2025, supported by both the resource and non-resource sectors. Fiscal consolidation continued, helping to reduce public debt. Yet, many households still face rising prices and hardship. Delivering more inclusive growth and faster poverty reduction will require sustained investments in human capital and connectivity, prudent macroeconomic management, and a more supportive business environment.

Growth remained strong in 2025 at 3.2 percent, driven by construction, forestry, and robust private consumption amid low inflation and an accommodative monetary policy. Recent global developments may dampen growth in 2026. Poverty has declined, external balances have stabilized and reserves remain adequate. Expansionary fiscal stance has kept public debt high. Medium-term growth is expected to return to trend, hinging on fiscal consolidation and reforms.

The economy faces risks from its high exposure to the conflict in the Middle East, with adverse effects on tourism, energy exports, and investment sentiment. Bahrain's combination of small size and geographic proximity to the conflict’s epicenter makes it one of the most economically vulnerable states in the event of prolonged tensions. This adds to fiscal challenges, with fiscal deterioration and rapidly rising debt.

The economy has been severely affected by conflict in the Middle East, with large spillovers to hydrocarbons, tourism, aviation, trade, and logistics. Prior to the conflict, growth was strong, supported by robust non-hydrocarbon activity and improving oil production. Strong fiscal and external buffers, low inflation, and ongoing reforms underpin macroeconomic stability, while diversification, digital investment, and energy transition initiatives will support resilience.