The fresh projection marked a sharp downgrade from its October projection of 4% growth and comes as the region grapples with geopolitical tensions, softer external demand and oil market volatility.

"Uncertainty could impact the real economy, consumption, investment... all these elements led to a softening of our projections," Jihad Azour, the IMF's Director for the Middle East and Central Asia Department, told Reuters in an interview.

"The direct impact of the tariff measures is limited because the integration in terms of trade between the region and the United States is limited," Azour said.

The IMF also pointed to a gradual recovery in oil production, protracted regional conflicts, and delayed structural reforms, particularly in Egypt, in its latest Regional Economic Outlook report released in Dubai.

"The ongoing conflicts in the Middle East and North Africa (MENA) region have inflicted profound humanitarian costs and left deep economic scars," it said in the report, adding that the impact has been severe for the region's oil importing economies.

The MENA non-oil importers are now expected to see real Gross Domestic Product (GDP) growth of 3.4% in 2025, versus an earlier forecast of 3.6%.

Growth among non-Gulf Cooperation Council (GCC) oil exporters is expected to slow by one percentage point in 2025, a sharp downward revision, before staging a modest recovery in 2026.

On the other hand, GCC economies are projected to strengthen, though at a slower pace than anticipated in October, amid extended Organization of the Petroleum Exporting Countries (OPEC+) voluntary production cuts through April, a gradual phase-out by end-2026, and weaker non-oil activity.

"With all these changes and challenges, it's important also to seek new trade partnerships," Azour said, referring to the GCC, a bloc comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

IMF projects GCC's GDP growth for 2025 at 3%, down from its October forecast of a 4.2% increase.

GCC countries have stepped up efforts to diversify their economies, with major initiatives like Saudi Arabia’s Vision 2030 and the United Arab Emirates’s push into tourism, logistics and manufacturing aimed at reducing reliance on hydrocarbons.

"Trade diversification, acceleration of structural reforms, and improvement of productivity are all elements that will help the non-oil sector to maintain a strong level of growth," Azour said.

---Reuters---