The Egyptian Information and Decision Support Center (IDSC) has shed light on Moody’s recently published “MENA Economic Outlook: Strategic Foresight in Uncertain Times” report by Moody’s Investors Service. The report provides insights into the economic outlook for the MENA region in 2025, emphasizing the global transition to a “new normal” amid a fragile and ever-changing environment, with particular attention to the geopolitical challenges that could affect the region.
The report indicates that growth rates in major economies have returned to more typical levels, and interest rates have started to decline. However, the document also points out that 2025 may still witness significant disruptions due to several geopolitical factors.
According to the report, after a series of major shocks in recent years, global economic growth is beginning to normalize as these shocks dissipate. With inflation levels nearing or reaching central banks’ targets in many markets, the world will to enter a cycle of monetary easing, reducing uncertainty and helping to stabilize financial market volatility.
Moody’s forecasts that declining inflation will ease pressure on wage hikes, benefiting consumers with lower mortgage costs and less expensive loans, potentially aiding sectors such as retail and durable goods. Additionally, the report suggests that a potential economic recovery in the coming year could provide governments with more opportunities to stabilize or reduce national debts, and the easing of monetary policies could support capital flows to emerging markets.
Despite these positive signals, the report highlights significant uncertainty about what the “new normal” will look like for the global economy. It predicts that economic growth in many countries will fall below expected averages, driven by structural factors such as weak investment, high levels of debt, aging populations, low productivity growth, and institutional constraints, particularly in large emerging markets.
The report also underscores the impact of geopolitical tensions, which have become a major threat to global credit conditions. Governments and businesses are actively working to build resilience by diversifying supply chains, but the unpredictable nature of geopolitical developments may lead to additional shocks that require further responses from both governments and businesses.
In particular, the report points to the deterioration of economic relations between the United States and China since 2019, when President Donald Trump imposed tariffs and trade barriers against China. Although the impact on global trade has been minimal thus far, new tariffs proposed by the incoming president could further disrupt trade, potentially reducing China’s economic growth by between 0.9% and 2.5% in the first year of implementation.
Moreover, the report anticipates stricter investment restrictions and more stringent rules on the origin of goods, which could affect regions and sectors with strong trade ties to China, including Latin America and the Asia-Pacific region. For Taiwan, this may accelerate efforts by major economies to diversify semiconductor production, posing long-term economic challenges for the country.
The report also discusses the potential for further disruption in global trade if new tariffs are imposed. In such scenarios, U.S. companies in strategic sectors could benefit from incentives to build new domestic manufacturing capabilities.
Moody’s further cautions that trade wars typically result in losses for all parties involved, particularly for economies where trade constitutes a significant portion of GDP. Such conflicts present challenges for companies tied to global supply chains, especially those with single-source suppliers, as they are more vulnerable until they diversify their supply chains. Additionally, the report notes that geopolitical tensions are likely to cause discrepancies in product standards across regions, driving up costs for exporters and hindering the exchange of critical information necessary for high-tech manufacturing. Given China’s leading role in processing and extracting raw materials for green technology, these tensions may slow down the global green supply chain, delaying the transition to new green technologies.
The report also emphasizes the ongoing geopolitical risks in the Middle East, where diplomatic efforts, military deterrence, and the high cost of war make a full-scale conflict less likely. However, each escalation in violence—particularly between Iran and Israel—raises the risk of further involvement from the U.S. and its allies.
The report warns that the credit implications for some Middle Eastern governments could be significant. If shipping through the Strait of Hormuz is disrupted or if Iran attacks other Gulf nations, global impacts could include higher energy prices, disrupted supply chains, financial market volatility, and diminished economic and financial sentiment. However, even in this scenario, the global effects may still be less severe than the inflation shock following the COVID-19 pandemic. In conclusion, the report suggests that geopolitical events will continue to have a significant impact on global credit conditions in 2025.
The report also delves into the role of digitization in the global economy, particularly the increasing influence of new technologies such as artificial intelligence (AI). These technologies are enhancing workforce productivity, and companies are expected to invest billions of dollars in AI in 2025 to secure a competitive advantage. However, profitability remains distant for many companies, and some may end up using scarce resources that could have been better used to bolster balance sheets or liquidity positions without substantial returns.
Additionally, the report discusses the need for companies and governments to navigate the risks associated with AI, with larger companies and banks likely benefiting from their greater financial resources and ability to attract talent.
Finally, the report touches on anticipated global shifts in the climate economy. It predicts that the re-election of President Trump in 2024 could alter U.S. climate policy, increasing risks for green investments, slowing down the carbon transition in the U.S., and potentially weakening the global momentum for climate action. This could lead to decreased funding for clean energy and green technologies, as well as a rollback of environmental regulations and renewed support for the fossil fuel industry. There is also a possibility that the U.S. may withdraw from the Paris Climate Agreement once again.
