Muscat – GCC economies are forecast to slightly contract this year as recent regional escalations continue to weigh on economic activity, according to a new report by Oxford Economics and ICAEW.

Set against a backdrop of softening global growth, ICAEW’s latest Economic Insight Q1 2026 report forecasts GCC GDP to contract by 0.2% in 2026, reflecting sustained disruption to energy trade, travel and investor sentiment. However, the report also points to a strong recovery next year, with GCC GDP projected to expand by 8.5% in 2027.

The pace and strength of the recovery will depend on how conditions evolve in the coming months, with prolonged disruption presenting a more challenging outlook, the report noted.

Under current conditions, GCC economies with greater exposure to international trade, tourism and logistics are likely to see more pronounced near-term adjustments, while others are expected to remain relatively resilient, reflecting differences in economic structure, export flexibility and exposure to global demand.

The report noted that elevated oil prices have provided some support; however, this has been offset by constraints on production and export volumes. Only Saudi Arabia and the UAE are able to export through alternative pipelines.

GCC oil sector output is forecast to decline by 5.8% in 2026, before rebounding strongly by 18.2% in 2027.

Beyond energy, the effects on tourism and travel are expected to be more sustained. The report noted that airspace disruption and weaker sentiment have led to a decline in international visitor flows, with arrivals to the Middle East projected to fall by between 11% and 27% this year. This equates to up to 38mn fewer visitors to the region and as much as $56bn in lost spending, according to the report.

‘This will weigh on broader non-oil activity across the region, with growth projected to remain largely flat at 0.1% in 2026, before recovering to 6.4% in 2027 as confidence returns,’ the report said.

It added that heightened uncertainty is expected to drive more cautious consumer and business behaviour in the near term, with precautionary savings rising and investment activity softening.

The report said that, from a fiscal perspective, the impact will vary across the region. Higher oil prices will likely support government revenues in some GCC economies, while others may face pressure due to constrained export volumes. Government spending is expected to increase across the GCC as authorities support economic stability and prioritise strategic sectors, including financial services, technology and healthcare.

Hanadi Khalife, Regional Director, MEASA, ICAEW, said, “Recent regional developments have created a more challenging near-term environment for GCC economies, with disruption to energy trade and softer confidence weighing on activity. While this has placed pressure on growth in the short term, the region’s underlying fundamentals remain strong, supporting a recovery as conditions stabilise.”

Azad Zangana, Head of GCC Macroeconomic Analysis at Oxford Economics, added, “The impact across the GCC reflects differences in economic structure and exposure to external demand. While energy markets are anticipated to recover as trade flows normalise, sectors such as tourism may take longer to recover, which could weigh on diversification momentum in the near term. The strength of the rebound will depend on how quickly stability returns and confidence is restored.”

 

© Apex Press and Publishing Provided by SyndiGate Media Inc. (Syndigate.info).