Emerging Markets to Face Middle East War Repercussions – S&P
S&P Global Ratings said its macroeconomic baseline scenario for emerging markets (EMs) assumes war in the Middle East persists into early April, and its negative impact on energy prices and financial conditions is temporary.
However, the downside risks to the baseline macroeconomic scenario are significant and subject to the evolution of the conflict, which is highly uncertain.
A longer and more severe conflict than expected would increase inflation substantially, put upward pressure on interest rates, and lower GDP growth for most Ems, S&P said.
Net energy importers, which are mostly in Asia, would be the most vulnerable in such a scenario, along with the economies in the Middle East and surrounding regions that are directly involved in the conflict.
Among the key EM EMEA economies, S&P expects Egypt, Turkiye, and, to a lesser extent, Saudi Arabia to have the most repercussions from the Middle East war.
“Our growth forecasts for Nigeria and South Africa remain largely unchanged, as we expect these economies to benefit from higher prices for oil and precious metals, respectively.
“Nevertheless, we have a somewhat weaker outlook for both the Nigerian naira and the South African rand as capital flows to safe havens.
“We also now expect tighter monetary policy stances among all key EM EMEA economies compared with our previous projections.
The war in the Middle East has mostly affected Egypt among the key EM EMEA economies. The conflict has disrupted natural gas imports from Israel.
Egypt relies heavily on those imports, which account for over 20% of all the gas consumed in the country. At the same time, the exchange rate has depreciated by more than 8% since the beginning of the year.
“Therefore, we significantly raised our inflation projections for the current fiscal year (July 1, 2025, to June 30, 2026) and the next two fiscal years (to 13.7% and 15.8% from 12.1% and 10.2%, respectively).
“Given ongoing exchange rate pressures, we also assume a significantly tighter monetary stance.
“We haven’t revised Egypt’s GDP growth expectations for fiscal 2025-2026, reflecting stronger-than-expected growth in the first and second quarters. However, as higher inflation and a weaker exchange rate will likely hamper domestic spending, we revised down our GDP growth projection for fiscal 2026-2027 to 4.2% from 4.7%”.
For Türkiye, S&P now expect significantly higher average inflation in 2026 compared with the previous forecast, up to 28.9% from 23.4%, reflecting a rise in energy prices and stronger-than-expected pass-through from the minimum wage increase in January.
As a major net energy importer, Türkiye is highly vulnerable to swings in energy prices, with its net energy imports accounting for 3.5%-4.5% of GDP.
Despite elevated inflation and a more restrictive monetary policy stance, S&P expects growth to remain resilient this year, supported by an anticipated rebound in agriculture, a positive household wealth effect from higher gold prices, and continued momentum in loan growth.
“We project GDP growth of 3.4% in 2026, compared with 3.6% in 2025”.
Also, S&P has revised Saudi Arabia’s growth projections for 2026 and 2027 slightly upward due to an expected increase in oil production once the Strait of Hormuz reopens and strong growth momentum in the non-oil sector.
“In our baseline, we do not assume disruption to the East-West pipeline. Nevertheless, we assume a temporary reduction in oil exports of around 1.5 million barrels per day for two months, reflecting infrastructure bottlenecks related to rerouting exports.
“Our growth projections for Nigeria remain largely unchanged. We expect that declining inflation will support domestic demand, while higher oil production should underpin export growth. However, the recent rebasing of the consumer price index led us to significantly revise our average inflation projection for 2026 to 15.0% from 20.8%,” it said. Guterres Calls for Immediate Release of Detained 118 UN Staff
