The economies of the Gulf Cooperation Council (GCC) states are in a position of strength and are poised for further expansion despite global uncertainty.
While potential risks remain, particularly from lower oil prices and a weaker dollar, we believe the GCC economies are well-positioned to withstand them as it undergoes a major transformation, shifting away from its traditional dependence on oil toward economic diversification and more investment-friendly environments.
The International Monetary Fund (IMF) projects a real GDP growth of 4% for the UAE in 2025, 2.8% for Bahrain, 2.4% for Qatar, 2.3% for Oman, and 1.9% for Kuwait— all of which are unchanged or greater than their 2024 levels. Furthermore, in their July update, the IMF upgraded Saudi Arabia’s growth by 0.6 percentage points to 3.6% for 2025 and 0.2 percentage points to 3.9% for 2026.
Inflation remains largely stable, with the IMF predicting the inflation rate in Saudi Arabia, the region’s largest economy, to stand at 2.1% in 2025 and 2% in 2026.
However, as we believe the Federal Reserve will cut interest rates four times between 2025 and 2026, as part of an easing cycle they started in 2024, the dollar-pegged GCC states, which typically follow similar cuts, will need to balance supporting economic growth and containing inflation carefully.
Another potential risk is a weaker US dollar, which dropped around 11% compared to a basket of major currencies in the first half of this year. We anticipate the decline to persist in the coming quarters. However, the trend is likely to be more volatile, driven by factors such as portfolio reallocation and the resumption of the Federal Reserve’s easing cycle to reduce interest rate differentials.
A weaker US dollar could raise import costs in the GCC, driving inflation up and squeezing business profit margins. Despite the dollar’s decline, the region’s economies may benefit from a competitiveness boost to non-oil exports.
A sustained decline in oil prices could raise concerns about trade balances. However, the GCC states have made strategic investments to potentially offset some of these challenges.
Kuwait plans to borrow up to $20 billion during the current fiscal year, mainly to finance infrastructure projects. At the same time, Qatar has launched a $1 billion incentive program to attract investment and boost economic diversification, while the UAE plans to boost annual foreign direct investment inflows from Dh112 billion in 2023 to Dh240 billion ($65 billion) by 2031. The UAE’s strategy focuses on key sectors such as industry, logistics, financial services, renewable energy, and information technology.
The IMF predicts robust domestic demand in Saudi Arabia will keep non-oil growth above 3.5% over the medium term, driven by the implementation of Saudi Vision 2030 projects and international events.
President Trump’s recent visit to the region is expected to drive diversification efforts, fostering collaboration in key sectors such as artificial intelligence, energy and defence.
Despite potential risks and uncertainty, the region has demonstrated resilience in the face of headwinds, continuing to advance its economic diversification agenda. The GCC economies are well-positioned for further growth in 2026, according to IMF projections.
