Although a decline of 6.4 percent is expected in the Gulf’s economy by 2026, it will be partially made up for by an increase of 5.8 percent in 2027. According to a new economic forecast released by the ICAEW, energy markets will stabilize and non-oil sectors will also recover, thus leading to such a growth. Slowdown in the Red Sea area and the failure to export oil caused the region’s growth to stagnate, but the expected developments in the Gulf area should ensure recovery.
The hydrocarbon industry is expected to play a major role in this revival. Energy production in the region is forecasted to rise by 25.9% in 2027 after a decline of 26.9% in the previous year, but the recovery will be uneven across the countries. Qatar is likely to prove to be an extraordinary performer in the region with a projected annual growth of 11.5%, thanks to the uninterrupted oil exports through the Strait of Hormuz. The UAE is expected to register a growth of 6.6% this year after a slight fall of 1.5%, whereas Saudi Arabia’s oil industry will be recovering slowly with an expected growth of 4.7%.
The geopolitical changes are reflected in the energy prices in the world. However, market participants are likely to keep pushing the price of Brent crude above $100 per barrel until early 2027 following few choices for rerouting exports and constraints in shipping through the Red Sea and through the Saudi Arabia’s East-West pipeline.
The region’s non-oil economy is showing unexpected strength, albeit within a broader context of relatively low oil shares and high energy prices. The non-oil sectors are expected to see a recovery in growth by 3.3% next year following a downward swing in 1.9% in 2013. This strength has been reflected in recent Purchasing Managers’ Index (PMI) numbers for Saudi Arabia, which rose to its highest level in the last six months in August to 53.8, and its similar positive non-oil recovery readings in Kuwait and the UAE.
Tourism continues to be very vulnerable to conflicts in the region, but the gradual healing of the region is evident. With tourism contributing about 13% to the GDP in the UAE, the number of visitors is projected to reach pre-conflict levels by the end of 2028, increasing by 30% in 2027 and 59% in 2028.
Hanadi Khalife, Regional Director MEASA at ICAEW points out that regional businesses are quickly reacting to the current climate by actively diversifying supply chains and taking stock of their finance and investment plans. Such flexibility on the ground is essential to thrive in economic change over the long term.
Azad Zangana, Head of GCC Macroeconomic Analysis at Oxford Economics, notes that consumer confidence and PMI data is doing well compared with the headline growth figures. But prolonged high energy prices and damage to Saudi oil export infrastructure is continuing to lengthen the recovery time frame. GCC central banks are likely to follow suit with the Fed expected to raise rates again in December, meaning that policymakers will be tightening in lockstep.
The neighbouring economies are a mixed bag, but not just in the Gulf states. This year Jordan is expected to see economic growth of 2.8%, which would reflect steady growth after years of weakness in the region; in 2027 the growth is projected at 2.6%. Syria is at the same time poised to grow the economy by 10% in a few years’ time, thanks to its progress in reintegrating into the world’s trading network.
