In a striking display of resilience, the economies of the Gulf Cooperation Council (GCC) are forecast to grow by 4% in 2025 despite rising global protectionism and geopolitical tensions. This upbeat projection, detailed in the latest ICAEW Economic Insight report prepared by Oxford Economics, comes at a time when many regions are grappling with uncertain external demand, tariff headwinds, and shifting energy policies. According to the report, while global trade remains volatile, the GCC’s diversified economies are well positioned to weather these storms, bolstered by robust non-energy sector growth, strategic government investments, and continued fiscal discipline.

Navigating Global Trade Uncertainty

Global trade dynamics have been under significant strain in recent years, driven by heightened protectionism and disruptive tariff policies. For instance, US President Donald Trump’s aggressive tariff policies have created waves of uncertainty in international trade. Although these measures have raised concerns over diminished external demand, the GCC region has largely been insulated from direct tariff impacts. This insulation is partly due to the region’s strong trade agreements and its strategic focus on non-energy diversification.

Rising protectionism has not only affected trade volumes but has also influenced the pricing of essential commodities worldwide. In the GCC, however, strong intra-regional trade ties and proactive government policies have helped mitigate the adverse effects of global trade uncertainty. Despite external pressures, the region has been able to maintain a stable economic outlook, largely thanks to ongoing reforms and strategic investments in key sectors.

A Promising Growth Outlook: 4% in 2025

The ICAEW report forecasts a substantial growth acceleration for the GCC, projecting an increase from an estimated 1.8% in 2024 to 4% in 2025. This turnaround is attributed to several key factors:

• Resilient Non-Energy Sectors: With non-energy sectors expected to grow by 4.4% this year—up from 3.9% in 2024—the region is shifting its economic base away from oil dependency. Industries such as tourism, finance, real estate, and technology are set to drive this growth.
• Positive PMI Data: Regional Purchasing Managers’ Index (PMI) data indicate that economic activity is in expansionary territory, reflecting increased business confidence and investment.
• Government Investments: Strategic investments, particularly in infrastructure, education, and healthcare, are fostering an environment conducive to sustainable growth. These investments are complemented by fiscal policies aimed at balancing social development with long-term economic stability.

Energy Sector Rebound and OPEC+ Policy Shifts

While non-energy sectors are propelling the bulk of economic expansion, the energy sector also plays a crucial role in the GCC’s economic outlook. Recent policy shifts within OPEC+ have led to a gradual increase in oil production from April 2025, marking a rebound after two years of contraction. This renewed production momentum is set to boost oil-sector growth to 3.2%.

Saudi Arabia and UAE: Energy Leaders with Diverging Trajectories

• Saudi Arabia: Expected to ramp up oil output to 9.3 million barrels per day, Saudi Arabia’s oil sector is forecast to grow by 1.9%. However, the Kingdom is also pursuing strategic investments aimed at economic diversification. A notable fiscal challenge for Saudi Arabia remains its projected budget deficit of 3% of GDP, as it channels funds into non-oil sectors and modernizes its infrastructure.
• United Arab Emirates (UAE): With a higher quota of 3.5 million barrels per day, the UAE is positioned to achieve a robust oil-sector growth of 4.8%. The UAE’s proactive investment strategies, especially in tourism and technology, are reinforcing its dual strength in both energy and non-energy sectors.

In recent weeks, oil prices have seen a significant decline due to tariff threats and increased supply from OPEC+ members. Prices are now forecast to average $70.5 per barrel in 2025, a drop from $80.5 in 2024. This adjustment in oil prices is expected to have a mixed impact: while lower prices might dampen oil revenues, they can also boost non-oil sectors by reducing production costs and stimulating consumer spending.

Country-Specific Economic Dynamics

Saudi Arabia: Balancing Strategic Investments and Fiscal Discipline

Saudi Arabia, the largest economy in the GCC, is at the forefront of economic transformation. The Kingdom’s Vision 2030 initiative continues to drive diversification, encouraging investments in technology, tourism, and renewable energy. Despite facing a projected budget deficit of 3% of GDP, Saudi Arabia is leveraging this deficit to fuel strategic investments that will, in turn, stimulate long-term growth.

Key measures include:

• Investment in Tourism: Expanding tourism initiatives, such as the GCC-wide visa initiative, is expected to generate significant revenue. Tourism is already the fastest-growing sector in the region and remains a key pillar in the diversification strategy.
• Infrastructure Development: Major infrastructure projects are underway, aimed at modernizing transportation networks and bolstering logistical efficiencies. These projects not only create jobs but also enhance the Kingdom’s connectivity with global markets.
• Renewable Energy and Technology: With increasing investments in renewable energy, particularly solar and wind, Saudi Arabia is positioning itself as a leader in sustainable development. This move is critical in reducing the country’s reliance on oil revenues and aligning with global environmental trends.

United Arab Emirates: A Dual Powerhouse in Energy and Diversification

The UAE continues to set benchmarks in economic diversification. With a strategic focus on high-value sectors like finance, tourism, and technology, the UAE is driving non-oil sector growth at a rate of 4.8%. This is complemented by a robust oil sector performance, making the UAE one of the region’s most dynamic economies.

Recent initiatives include:

• Smart City Projects: The UAE’s investment in smart city projects, particularly in Dubai and Abu Dhabi, is transforming urban landscapes. These projects are designed to integrate digital technology into city planning, enhancing efficiency and improving quality of life.
• Tourism Expansion: The UAE is leveraging its cultural and recreational assets to boost tourism. With world-class infrastructure and a strategic marketing approach, tourism remains a vital contributor to the economy.
• Financial Hub Development: Efforts to bolster Dubai’s status as a global financial hub continue unabated, attracting foreign investment and fostering a competitive business environment.

Qatar: LNG Expansion and Steady Economic Progress

Qatar’s economy, while smaller in scale compared to Saudi Arabia and the UAE, is on a steady growth trajectory. The report forecasts a GDP expansion of 2.1% in 2025, with non-energy sectors growing by 2.9%. Qatar’s long-term prospects are further brightened by plans to more than double its GDP growth by 2026, driven by additional LNG capacity coming online.

Key factors include:

• Energy Diversification: While Qatar remains a major LNG exporter, efforts are underway to diversify its energy portfolio. Investments in renewable energy projects and petrochemicals are expected to create new revenue streams.
• Infrastructure and Investment: Qatar is channeling significant resources into infrastructure and urban development, in preparation for events such as major international sports tournaments and expos. These developments are set to stimulate the economy and enhance the country’s global profile.
• Private Sector Growth: Ongoing reforms to enhance the business environment and attract foreign investment are bolstering the private sector, further supporting steady economic growth.

Bahrain: A Story of Recovery and Fiscal Prudence

Bahrain’s economy is set to double its growth rate to 2.8% in 2025, with the non-oil economy expanding by 3.1%. After contracting by an estimated 2.4% in the oil sector in 2024, Bahrain is now poised for a modest recovery of 0.9% in this segment. The country’s recovery is underpinned by a commitment to fiscal discipline and diversified economic policies.

Important initiatives in Bahrain include:

• Economic Reforms: Bahrain has been implementing a series of economic reforms aimed at reducing dependence on oil revenues. These reforms include privatization efforts and initiatives to attract foreign investment.
• Sectoral Diversification: With a focus on sectors such as finance, manufacturing, and tourism, Bahrain is laying the groundwork for sustainable, long-term growth.
• Fiscal Prudence: By maintaining a balanced budget and focusing on social development—particularly in education and healthcare—Bahrain is creating a stable environment for both domestic and foreign investors.

Inflation, Fiscal Policies, and Social Development

The ICAEW report forecasts an aggregate GCC inflation rate of 2.3% for 2025, with medium-term projections stabilizing around 2%. Despite minor variations—with Bahrain, Oman, and Qatar experiencing inflation rates below 1% and Saudi Arabia averaging 1.7% in 2024—price stability remains a cornerstone of GCC economic policy. Controlled inflation not only supports consumer purchasing power but also creates a favorable investment climate.

Fiscal policies across the GCC are designed to balance economic growth with sustainable social development. Governments are strategically investing in education, healthcare, and infrastructure, all while maintaining fiscal discipline. The aggregate budget position in the GCC is expected to remain broadly balanced, thanks to surpluses in Qatar and the UAE. This approach ensures that fiscal policies not only support immediate economic growth but also lay the groundwork for long-term development.

Strategic Investments and Diversification Efforts

The GCC’s ability to achieve robust growth amid global uncertainty is largely attributed to its strategic investments in key sectors. The region is actively pursuing diversification to reduce its reliance on oil revenues and build more resilient economies. Significant investments in tourism, technology, renewable energy, and infrastructure are central to these efforts.

Tourism: A Driving Force for Economic Growth

Tourism has emerged as the fastest-growing sector across the GCC, buoyed by initiatives such as the GCC-wide visa policy, which simplifies travel for millions of visitors. Countries like Saudi Arabia and the UAE have launched ambitious projects aimed at transforming their tourism landscapes. From luxury resorts and cultural heritage sites to mega events and international expos, tourism is not only generating direct revenue but also spurring broader economic activity in related sectors such as retail, hospitality, and transportation.

Technology and Innovation: Shaping the Future

The region is also placing a strong emphasis on technology and innovation as key drivers of growth. Initiatives to foster digital transformation—ranging from smart city projects to investments in fintech—are creating new opportunities for businesses and consumers alike. These efforts are designed to build a modern, diversified economy that can compete on a global scale, even in the face of evolving trade dynamics and external uncertainties.

Renewable Energy: Steering Towards a Sustainable Future

Given the global focus on reducing carbon emissions and the inherent volatility of oil prices, the GCC is accelerating investments in renewable energy. Countries such as Saudi Arabia and the UAE are pioneering large-scale solar and wind projects that not only support energy diversification but also contribute to environmental sustainability. These initiatives are crucial for mitigating the impact of global oil price fluctuations and ensuring long-term energy security.

The Role of OPEC+ and External Influences

The ongoing recalibration of OPEC+ policies has profound implications for the GCC economies. The gradual easing of production cuts is expected to stabilize the oil market, albeit with lower average prices than in previous years. The anticipated increase in production—from April 2025 onward—will help counteract years of contraction in the oil sector. However, this shift also presents a delicate balancing act: while increased oil output can bolster government revenues, lower oil prices may also pressure national budgets that have relied on higher prices in recent years.

OPEC+’s decisions, influenced by global economic conditions and political considerations, remain a critical external factor for the GCC. The interplay between global oil demand, technological shifts in energy consumption, and evolving geopolitical landscapes will continue to shape the region’s economic prospects. Policymakers in the GCC are thus focused on ensuring that their economies are robust enough to adapt to these external fluctuations through diversification and fiscal prudence.

Looking Ahead: Challenges and Opportunities

While the outlook for the GCC is optimistic, several challenges remain. The region must navigate persistent global trade uncertainties, manage the implications of lower oil prices, and continue the momentum of diversification in an increasingly competitive global market. In addition, maintaining fiscal balance while pursuing ambitious development projects requires careful policy calibration and strong governance frameworks.

Yet, the opportunities are equally compelling. The projected 4% growth for 2025 underscores the region’s ability to not only withstand external pressures but also to capitalize on emerging trends. The integration of technology, the commitment to sustainable development, and the strategic use of government investments all point to a resilient economic future for the GCC.

Conclusion

The latest ICAEW Economic Insight report, prepared by Oxford Economics, paints an encouraging picture for the Gulf Cooperation Council. Amid global trade uncertainties and shifting energy policies, the GCC is poised for a significant economic rebound, with forecasts predicting a 4% growth rate in 2025. This growth is driven by robust non-energy sector performance, strategic government investments, and a gradual recovery in the energy sector, underscored by evolving OPEC+ policies.

Key highlights include:

• Resilient Non-Energy Sectors: With projected growth rates of 4.4% and expanding contributions from tourism, finance, and technology, the non-energy sectors are the backbone of the GCC’s economic resilience.
• Energy Sector Developments: Strategic policy shifts and production increases in Saudi Arabia and the UAE are expected to stabilize and modestly boost oil sector performance, despite lower global oil prices.
• Fiscal and Social Investments: With a focus on balancing fiscal discipline and sustainable development, GCC governments are investing heavily in infrastructure, education, healthcare, and renewable energy.
• Country-Specific Strengths: Saudi Arabia’s ambitious diversification plans, the UAE’s dual strength in energy and innovation, Qatar’s LNG expansion, and Bahrain’s steady recovery all contribute to a balanced and diversified economic outlook.
• Global Trade and External Pressures: While US tariff policies and global protectionism continue to exert pressure on international trade, the GCC remains largely insulated through robust intra-regional ties and proactive economic policies.

As the region continues to navigate an era of global uncertainty, the GCC’s strategic investments, diversification efforts, and fiscal prudence will be key drivers of sustained economic growth. The projected 4% growth rate for 2025 is not just a statistical target—it is a testament to the resilience and adaptability of the GCC economies in the face of dynamic global challenges.

With ongoing reforms, increased investments in non-oil sectors, and a forward-looking approach to fiscal management, the GCC is setting the stage for a new era of prosperity. As policymakers and business leaders rally behind these transformative initiatives, the region is well-positioned to emerge as a beacon of stability and innovation in an increasingly interconnected global economy.

In summary, the forecasted growth in the GCC reflects a complex interplay of strategic investments, sectoral diversification, and proactive policy measures. Despite the headwinds posed by global trade uncertainties and fluctuating oil prices, the GCC’s commitment to economic reform and innovation is paving the way for a robust and resilient economic future.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

20th March, 2025