GCC Outlook Strengthens With 3.3% Growth Forecast for 2025, IMF Says

RIYADH: The Gulf Cooperation Council economies are set to maintain growth momentum despite rising global uncertainty, underpinned by strong non-oil activity, solid domestic demand, and ongoing structural reforms, according to a new analysis. 

In its latest regional assessment, the International Monetary Fund said the GCC output is forecast to accelerate to an average 3.3 percent in 2025, up from 1.7 percent in 2024, as members unwind oil-production cuts under the OPEC+ agreement.  

The projection is broadly aligned with the World Bank’s December outlook, which sees regional growth rising to 3.2 percent in 2025 and 4.5 percent in 2026. 

“The economic outlook remains favorable, but risks are tilted to the downside amid elevated global uncertainty,” the IMF said. Growth will be supported by higher natural-gas output, strong project execution, and policy buffers that allow governments to sustain investment. 

External positions are expected to remain “comfortable,” even as current-account surpluses narrow with rising imports. 

Across the Middle East and North Africa region, growth is expected to accelerate from 2.6 percent in 2024 to 3.5 percent in 2025 and 3.8 percent in 2026. 

However, global growth is projected to decelerate slightly from 3.3 percent in 2024 to 3.1 percent in 2026, reflecting major shifts in international trade policies. 

Regarding monetary policy in the region, the IMF said current frameworks — consistent with the currency pegs — have served the GCC well and should be maintained. 

“The policy priority is to strengthen monetary policy transmission, including by enhancing liquidity management frameworks and deepening financial markets,” said the report.  

Non-hydrocarbon activities  

The analysis noted that non-hydrocarbon economic activity in the GCC strengthened in 2024, driven by strong domestic demand amid ongoing diversification efforts. 

The GCC non-oil economy grew by 3.7 percent on average in 2024, attracting significant investment, particularly in countries such as Saudi Arabia. 

In the Kingdom, non-hydrocarbon investments — including government investments — accounted for 85–90 percent of total gross capital formation. 

“With limited spillovers from tensions in the Red Sea and conflicts elsewhere in the region, non-hydrocarbon exports also showed robust performance, especially in the tourism sector, with double-digit growth in Qatar, Saudi Arabia, and the UAE,” the IMF said. 

 

The report added that tourist arrivals in the GCC remain strong in 2025, led by Saudi Arabia and the UAE. 

Over the medium term, growth in GCC countries will be supported by the strong performance of the non-hydrocarbon economy amid diversification efforts, alongside expanded oil and natural gas production and export capacity. 

“Although external balances will decline on the back of strong investment-driven imports and lower oil prices, buffers remain ample in most countries. The risks to the near-term GCC economic outlook are tilted to the downside, while ongoing global structural shifts pose two-sided risks over the medium term,” the report said. 

Additionally, non-oil sector growth will be supported by major international events, including the AFC Asian Cup in 2027, the Asian Winter Games in 2029, the World Expo 2030, and the 2034 FIFA World Cup in the Kingdom.  

Non-oil economic growth is projected to vary across the GCC, from about 2.5 percent in Kuwait and Qatar to 3.5–4 percent in Bahrain, Oman, and Saudi Arabia, reaching around 4.5 percent in the UAE over the medium term. 

Trade tensions and inflation 

The IMF said escalating trade tensions have had only a modest direct impact on the GCC, given the exemption of energy products from US tariffs and the region’s relatively limited direct trade links with the US. 

Countries in the GCC also contained inflation effectively, supported by the exchange rate peg, a broadly neutral output gap, and regulated prices. 

On average, headline inflation decelerated to 1.5 percent in 2024 and remained contained at around 1 percent during the first seven months of 2025. 

In 2025–26, headline inflation is expected to stay below 2 percent in Bahrain, Oman, and Qatar, close to 2 percent in the Kingdom and the UAE, and slightly above 2 percent in Kuwait. 

“Over the medium term, headline inflation will broadly stabilize at 2 percent, consistent with medium-term inflation in the US, supported by the exchange rate pegs, policy discipline, and the elastic supply of expatriate workers. In Kuwait, the moderation in inflation will also be supported by the closing of the non-oil output gap,” the IMF said.  

Strong banking system 

The report highlighted that GCC banking systems remain well-capitalized, liquid, and profitable, with nonperforming loans generally low. 

“In recent years, capital adequacy ratios have remained strong and stable across GCC banking systems, well above prudent regulatory requirements. Bank loans have been covered by deposit funding in most GCC countries,” the IMF said.  

It added: “Bank profitability has rebounded from its pandemic lows across the GCC. Nonperforming loans are generally low and well-provisioned for in the GCC countries, with loan impairments in the UAE having moderated, and loan provisions in Kuwait remaining very strong.” 

The report further noted that fiscal balances are projected to remain broadly stable across the GCC over the medium term, despite declining hydrocarbon revenues due to lower oil prices. 

Potential risks 

The IMF warned that weaker oil demand — driven by heightened global economic uncertainty, rising trade tensions, financial instability, or deepening geoeconomic fragmentation — could weigh on oil prices and revenues, affecting the region’s overall growth outlook. 

Additional downside risks include heightened geopolitical tensions, tighter global financial conditions from delayed US monetary easing in response to renewed inflationary pressures, imported inflation from further US dollar depreciation, and slower structural reforms alongside delays in infrastructure project execution.