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Middle East to be a growth leader for global construction

20 August 2025

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The global construction industry enters the second half of 2025 in a fragile but forward-looking position. According to UK analytics firm GlobalData’s recently published Global Construction Outlook to 2029 report, output for the sector expanded by 3.1% in 2024, supported by strong US activity and stimulus-driven infrastructure spending, but momentum is expected to cool in 2025 with forecast real-terms growth of 2.3%.

Geopolitical tensions, inflationary pressures and shifting trade policies weigh heavily on project viability in many regions. In contrast to the muted outlook for advanced economies, emerging markets – particularly in Asia and the Middle East – are positioned as the industry’s key engines of growth.

For the Middle East and North Africa (Mena), the outlook presents both risks from external shocks and opportunities from the region’s unparalleled pipeline of transformational projects.

Diverging markets

Global construction markets are diverging. Advanced economies face structural challenges, with high interest rates depressing housing demand, elevated input costs squeezing contractors and fragile investor sentiment limiting new commitments.

The residential sector, still the largest globally, will remain a drag, marking its fourth consecutive year of contraction in 2025 with a forecast decline of 0.75%. Emerging markets are set to expand by 3.9% in 2025 compared to just 1.8% for advanced economies. Although this is slower than the 6.6% growth recorded in 2024, it reinforces a structural trend: the centre of construction growth is shifting away from Western economies and towards Asia, Africa and the Middle East.

One of the biggest near-term uncertainties stems from US trade policy. The Trump administration’s tariffs, set to resume in the third quarter of 2025, threaten to disrupt supply chains and inflate costs. The decision to double tariffs on steel and aluminium to 50%, alongside 10%-25% duties on cement and other construction inputs, is already pressuring margins. Reciprocal tariffs are expected from over 60 countries. These measures disproportionately affect construction, given its reliance on globally traded materials. 

For Mena economies, which import large volumes of steel and cement, the tariff escalation risks higher input costs for projects, although the region’s sovereign-backed financing models and vertically integrated supply chains offer some insulation.

The global sector mix is shifting. While residential construction continues to contract, commercial construction is forecast to rebound, posting 2.5% growth in 2025 after a 1.1% fall in 2024. Energy and utilities remain the fastest-growing segment, albeit at a slower 5.1% pace in 2025 compared to 8.7% in 2024. The energy transition continues to drive demand for renewable power plants, transmission infrastructure and storage capacity.

Yet, policy shifts in Washington – particularly the rollback of the Inflation Reduction Act’s incentives – have cooled investor momentum in the US. This has created an opening for regions such as the Gulf, where national visions place decarbonisation and energy diversification at the centre of long-term strategies.

Regional expansion

Against this backdrop, the Mena region is expected to expand by 4.9% in 2025, outpacing the global average and positioning itself as one of the world’s most attractive construction markets.

Saudi Arabia continues to deliver gigaprojects such as Neom, Diriyah Gate and the Red Sea Project, alongside infrastructure linked to Fifa World Cup 2034. These schemes are not only boosting construction output, but also building domestic supply chain capacity.

The UAE is pressing ahead with large-scale urban development, transport and clean energy projects. Dubai and Abu Dhabi have placed diversification at the centre of their agendas, with Mohammed Bin Rashid Al-Maktoum Solar Park and the Barakah nuclear power plant symbolising their pivot towards sustainable growth.

Egypt, despite macroeconomic challenges, is allocating resources to residential, transport and utilities projects in an effort to sustain employment and absorb demographic pressures.

Elsewhere in the Gulf and North Africa, regional governments from Oman to Morocco are aligning construction activity with diversification and decarbonisation agendas, with Morocco’s preparations for the 2026 Africa Cup of Nations and Fifa World Cup 2030 providing an additional catalyst.

Contractor strategies

For Middle Eastern contractors and investors, the global picture has several implications. The region is relatively insulated from the global housing downturn given its emphasis on commercial, industrial and infrastructure-led growth.

Rising input costs remain a concern, particularly as tariff-driven inflation filters through to project budgets. Long-term procurement contracts and regional steel production capacity will be critical in mitigating these risks. At the same time, the slowdown in Western renewable investment momentum has created an opportunity for Gulf states to capture a larger share of global capital flows seeking stable, policy-backed projects.

Geopolitical risk remains a permanent variable. The flare-up in June between Israel, the US and Iran underscored how quickly regional tensions can resurface, reminding investors that large-scale project financing and execution remain vulnerable to sudden shocks even as governments push forward with diversification plans.

Looking further ahead to 2029, forecasts by GlobalData suggest that global construction will average moderate but steady growth, with emerging markets continuing to narrow the gap with advanced economies.

For the Middle East, the outlook is more robust, anchored by long-term national visions in Saudi Arabia, the UAE, Oman and Egypt, and reinforced by large-scale energy transition investments. Global sporting and tourism events are adding additional impetus to infrastructure demand.

While challenges around financing, cost escalation and geopolitical risk will persist, the region’s sovereign-backed model and extensive project pipeline suggest that the Mena region will be a growth leader through to 2029.

READ MORE: Region remains top of construction momentum index

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