GCC Economy Forecast To Contract 6.4% In 2026 Before Rebounding 5.8% In 2027, ICAEW Report Finds
The GCC economy is forecast to contract by 6.4% this year, after renewed escalation in the regional conflict disrupted Saudi Arabia’s oil export infrastructure, including damage to the critical East-West pipeline, and pushed Brent crude above $100 a barrel. A rebound of 5.8% is projected for 2027 as energy markets gradually stabilise, according to the latest Economic Insight: Middle East Q3 2026 report, published today by ICAEW and Oxford Economics.
Energy sector to anchor next year’s rebound, unevenly across the region
The GCC’s hydrocarbon sector is forecast to rebound by 25.9% in 2027, following a 26.9% contraction this year, as oil markets gradually stabilise. Saudi Arabia’s economy is projected to return to growth of 4.7% in 2027, following a 4.6% contraction this year, with the swing reflecting an expected gradual normalisation in the oil sector as this year’s disruption eases. The UAE is set for a strong 2027, with growth forecast at 6.6%, reversing a 1.5% contraction this year. Qatar is projected to record the region’s fastest expansion at 11.5%, reflecting its particular exposure to Strait of Hormuz-linked energy exports.
The report notes that options for rerouting energy exports have narrowed in recent weeks, with Saudi Arabia’s own East-West pipeline, previously seen as a key workaround, coming under renewed pressure, alongside separate disruption to shipping through Red Sea ports.
Non-oil activity and tourism face a more gradual recovery
Non-oil GCC sectors are forecast to grow by 3.3% in 2027, following a 1.9% contraction this year. The report expects non-oil momentum to build as consumers benefit from improving confidence and easing price pressures. Recent indicators point to some underlying resilience already: Saudi Arabia’s non-oil private sector expanded further in August, with the PMI reaching a six-month high of 53.8, while similar surveys in the UAE and Kuwait also pointed to continued non-oil recovery despite ongoing regional uncertainty.
Tourism remains among the sectors most exposed to the conflict. In the UAE, where the sector contributes around 13% of GDP, visitor numbers are projected to fall by 46.7% this year before rebounding by 30% in 2027 and a further 59% in 2028. A full recovery to pre-conflict levels is not expected before 2028.
Higher-for-longer energy prices weigh on rates, spending and inflation
GCC government spending growth is expected to slow sharply to 2.6% in 2027, from 7.4% this year, although the report expects spending to pick up again in 2028.
Inflation across the GCC is expected to ease only modestly to 2.1% in 2027, from 2.5% this year, as food and beverage costs continue to add pressure on households. With inflation proving persistent, the report expects the US Federal Reserve to raise interest rates again in December, with regional rate policies following suit. This is expected to keep borrowing costs elevated for longer, with rate cuts across the region not likely until 2028.
Wider Middle East picture remains mixed
Elsewhere in the region, the report highlights a varied picture. Iran’s GDP is forecast to contract by 11% this year amid curtailed oil exports and the UAE’s severing of economic ties with Iran in August, with only a shallow recovery expected in 2027. Iraq, which has rerouted exports via Syria and Turkey, is projected to grow 18.1% in 2027 following a 20.8% contraction this year. Lebanon is forecast to contract by more than 7% this year amid the wider conflict. Jordan remains the most resilient economy covered in the report, forecast to grow 2.8% this year and 2.6% in 2027 despite regional headwinds, while Syria’s economy continues to reintegrate into global trade, with growth expected to exceed 10% next year.
Hanadi Khalife, Regional Director MEASA, ICAEW, said: “What stands out to us on the ground is how quickly businesses across the region have adjusted, rerouting supply chains, revisiting financing plans and rebuilding confidence even while conditions remain unsettled. That adaptability doesn’t always show up in a single quarter’s growth figure, but it’s exactly what will determine how well the region weathers what comes next.”
Azad Zangana, Head of GCC Macroeconomic Analysis at Oxford Economics, added: “Non-oil momentum is holding up, with PMI data and consumer confidence both performing better than the headline growth numbers suggest. That said, Saudi Arabia’s oil export infrastructure has taken a significant hit, and energy prices look set to stay elevated for longer, both of which push out the likely timeline for a fuller recovery. We now expect the Fed to hike again in December, with GCC rates following suit.”
