Conflict clouds the outlook

The Israel-Iran conflict creates significant uncertainty over the outlook. Our working assumption is that it eases relatively soon, in which case economic growth across the region should pick up. But the turn to fiscal tightening in the Gulf will weigh on non-oil sectors there. Outside the Gulf, Egypt and Morocco are likely to record solid growth. And there is a real risk of an escalation of the Israel-Iran conflict, which would cause oil prices to spike, lead to balance of payments strains in Jordan and across North Africa, and higher risk premia in the region. But higher oil output and prices could lead to faster GDP growth in the Gulf economies.