(MENAFN- The Arabian Post) The Arab Investment & Export Credit Guarantee Corporation reported that the collective gross domestic product of Arab countries rose by 1.7 percent to about US$3.8 trillion in 2025, even as the region grappled with significant geopolitical tensions. The bulk of the growth remained concentrated in a handful of large economies - Saudi Arabia, United Arab Emirates, Egypt, Algeria and Iraq - which together account for nearly 73 percent of regional output. This underscores the extent to which the Arab economic landscape continues to depend on a narrow group of heavyweight economies.

The organisation projected a more ambitious expansion in 2026, forecasting Arab GDP to grow by 5.6 percent, lifting total output to roughly US$4 trillion as economic activity strengthens across 19 member states, including eight oil-producing economies that contribute over 70 percent of the region's GDP. That expected growth is underpinned by a combination of factors: structural reforms, a rebound in merchandise and services exports, and the easing of some regional uncertainties that had weighed on investment and trade.

Dhaman further indicated that measured on a purchasing-power parity basis, the Arab economy expanded by 6.1 percent, putting PPP-adjusted GDP above US$9.8 trillion for 2025, with a potential to cross the US$10 trillion threshold in 2026. On a per-capita basis, the estimated average across the region dipped marginally to US$7,806 in 2025, though disparities remain acute between oil-rich states and lower-income economies.

Investment data for 2024 - as compiled in Dhaman's“Investment Climate in Arab Countries 2025” annual report - show that foreign direct investment inflows surged by 53 percent to US$122.7 billion, representing 14.2 percent of global FDI flows to developing economies and roughly 8.1 percent of worldwide FDI. Nearly all of those inflows were concentrated in a small group of destination countries, with one major recipient drawing 38 percent of the total. Across the region, FDI stocks increased by 8.8 percent to reach US$1.2 trillion by end-2024.

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Greenfield investment projects also rose modestly: the number of such projects increased by 3 percent to 2,172 in 2024. However, capex associated with these projects fell sharply by 38 percent to about US$119 billion, and early 2025 saw a further drop, with capex across new projects halving compared with the same period in 2024. This suggests investors are more willing to initiate projects, but may be cautious about committing large capital under prevailing uncertainty.

Region-wide fiscal and debt indicators continue to raise concerns. Government debt relative to GDP climbed to 46.2 percent in 2025, and is expected to cross 47 percent in 2026. External debt remains high, at 54.6 percent of GDP in 2025, with only a slight anticipated rise by 2026. Meanwhile, the aggregate fiscal deficit widened sharply in 2025 to about US$95 billion - 2.5 percent of the total GDP - driven in part by a 13 percent drop in average global oil prices down to around US$69 per barrel. The deficit is projected to narrow only marginally to US$94.5 billion in 2026 despite expectations of a rebound in regional revenues and output.

Nevertheless, the region's foreign exchange reserves managed a modest increase of 3.4 percent, reaching approximately US$1.2 trillion - sufficient to cover around 5.6 months of merchandise and services imports on average. With GDP growth expected to proceed, reserves may further improve to cover 5.7 months of imports in 2026.

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