The region’s economic outlook remains cautiously optimistic as the Gulf Cooperation Council (GCC) countries look ahead. Navigating a transitional period marked by the ongoing effort to diversify economies and adapt to fluctuating oil revenues, the GCC is poised to face both challenges and opportunities. With a careful focus on sectoral growth, inflation trends, and fiscal stability, the region’s path forward is resilient and adaptable.
After a modest growth of 1.6% in 2024, the region will experience a stronger 4.2% expansion in 2025-2026. The bulk of this growth is expected to come from the non-oil sector, which has already seen impressive gains of 3.7%, thanks to ongoing diversification efforts and ambitious reforms. As global demand recovers and investments flood into key industries, the GCC looks set to capitalise on these positive developments. Still, challenges remain, especially with inflationary pressures in certain sectors and the inherent volatility of oil revenues.
The GCC’s ability to withstand external shocks has proven resilient, with minimal spillover effects from regional conflicts. The region’s limited trade and financial connections with Gaza and Israel have meant that the economic impact of these crises has been limited. While concerning, tensions in the Red Sea have had little effect on GCC economies, with trade, investment, and tourism largely unaffected. According to the December 2024 edition of the IMF reports, the growing use of trade restrictions and geopolitical fragmentation is raising concerns. The GCC’s commitment to multilateralism could help mitigate the effects, but if fragmentation deepens, the region could see a boost in energy prices and trade diversion, thanks to its relatively low tariffs compared to other regions. However, a global economic slowdown—particularly in China—could negatively affect both hydrocarbon and non-hydrocarbon exports. Furthermore, protracted conflicts and volatile hydrocarbon prices could strain the region’s economic stability, making external funding more costly.
The hydrocarbon sector remains a central pillar of the GCC’s economic future despite the region’s diversification efforts, according to the December 2024 IMF report on the GCC countries. Oil and natural gas will continue to play a vital role in driving both domestic growth and global energy supply. Expansion plans will increase natural gas production capacity in Oman, Qatar, Saudi Arabia, and the UAE. In contrast, GCC countries continue to lead the world in carbon-efficient energy production. Kuwait, Saudi Arabia, and the UAE rank among the top four least carbon-intensive oil producers. Oman, Qatar, Saudi Arabia, and the UAE are in the top six countries with the lowest carbon intensity for natural gas production. Thanks to its decarbonisation efforts, including carbon capture technologies, and its cost advantage over competitors, the GCC can maintain its energy production through the transition. Additionally, the region holds a significant share of global spare oil production capacity and reserves, further solidifying its role in the global energy market.
According to the World Bank Group Gulf monitor report, published in December 2024, inflation in the region has remained largely under control, dropping to under 2% in 2023. The trend is expected to continue, supported by effective monetary policies, currency pegs to the US dollar, and a disciplined fiscal approach. Looking ahead to 2024-2025, inflation is forecasted to remain low across most of the GCC, with Kuwait seeing slightly higher rates, while other countries like Bahrain, Oman, and Qatar maintain inflation rates below 2%. This stability and a flexible supply of expatriate workers will support the region’s overall economic stability, aligning it with global inflation trends.
In the near term, the risks to the outlook are balanced. On the upside, there’s potential for higher oil and natural gas production, stronger global demand, and the swift implementation of reforms and investments. On the downside, a global economic slowdown—particularly in China—could affect exports, and higher interest rates may stifle growth and financial stability. Moreover, large-scale projects that drive growth could lead to overheating and inflation. Lastly, the region’s exposure to ongoing geopolitical tensions, particularly in Gaza and Israel, could lead to more volatile hydrocarbon prices, reduced tourism and investment, and higher external funding costs.
In sum, while the GCC faces its share of challenges, its economic future is shaped by both resilience and opportunity. With continued diversification, careful management of oil revenues, and a focus on sustainable growth, the region is poised to navigate its transitional phase and remain a key player in the global economy.
