Avoiding the new mediocre

The Middle East and Central Asia region is facing unprecedented challenges. Deepening conflicts have caused a devastating loss of life and massive economic damage, forcing large portions of the population to flee abroad. Spillovers from these conflicts, including through increased security tensions, are weighing on confidence and economic activity across the region. At the same time, the new "lower for longer" oil price reality has dampened oil-exporting countries' longer-term growth prospects and rendered their oil-centered economic growth models untenable, with spillovers to oil-importing countries through lower trade, remittances, and investment. In all these countries, even six years after the Arab Spring, fast-growing populations continue to be frustrated by the lack of inclusiveness in the economic environment, in which job opportunities are few and connections appear more important than merit in accessing the gains from economic growth. In the neighboring Caucasus and Central Asia, spillovers from the recession in Russia, in addition to low oil prices, have brought on the most severe economic difficulties since these countries gained independence 25 years ago.