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GCC well-placed to be this year’s global growth standout

The overall financial position of the region, especially the UAE, Saudi Arabia and Qatar, is strong

GCC growth beach Dubai Pexels/Marx Ilagan
Travel and tourism will remain important pillars of UAE economic growth in 2025

At Oxford Economics, we think GDP growth in the GCC region will nearly double to 3.6 percent in 2025, above our forecast for the world of 2.8 percent. 

We are optimistic about this year’s outlook because we expect oil production to increase gradually. Non-energy sectors will also sustain their current robust trajectories.

The near-term outlook is likely to remain shaped by themes similar to last year’s, namely Opec+ decisions, US Federal Reserve policy, local pursuit of diversification and geopolitical tensions.

The timing of the turnaround in the energy sector will determine the pace and scale of GCC recovery. 

We expect Opec+ to extend its current production cuts over an additional quarter, due to bearish global demand. Regional producers are likely to keep oil output steady, but we think that in the second half of the year the energy sector will resume growth after a two-year decline.

A possible constraint is that production in non-Opec+ states has been strong, notably in the US. President-elect Donald Trump’s stated support for the domestic energy sector may thus slow Opec+ unwinding.

Away from oil, the region’s non-energy sectors have performed steadily. Expansion has hovered around 4 percent and remains a major driver of growth in the GCC. 

Solid PMI readings, higher government spending, wages outpacing inflation and monetary easing create favourable conditions for demand.

Monetary policy is likely to be loosened, but GCC economies are likely to see little benefit in 2025 because a turning point has already been reached. After 100 basis points (bps) in cumulative rate cuts in 2024, our baseline forecast assumes 75bps in cuts in 2025, although there is a risk that the Fed will be less aggressive.

Given the exchange rate pegs against the US dollar, GCC central banks will follow the rate path of the US Federal Reserve. 

We remain confident that the tourism industry, the fastest-growing sector across the region in 2024, will remain an engine for growth and diversification efforts. 

In November, 15 million visitors arrived in Dubai, a nine percent increase year over year. Passenger numbers are reaching record levels at Dubai International Airport. Travel and tourism will remain important pillars of UAE economic growth.

Saudi Arabia is also among the countries that welcomed a record high number of international tourists last year. 

The kingdom plans an ambitious $800 billion investment programme over the next 10 years, alongside major events such as the Asian Cup 2027, the Asian Winter Games 2029, Expo 2030 and the Fifa World Cup 2034

GCC nominal GDP

In the near term, the soon-to-be-launched GCC-wide visa will positively impact inbound tourism, as will an expanded visa offering, including the “visiting investor” visa.

Other sectors including financial services, real estate and manufacturing, are contributing to diversification. The strong momentum in IPOs is likely to persist, as authorities seek to deepen capital markets.

Growth prospects will mean that the GCC region remains attractive to investors. The UAE is likely to hold on to its top global position in terms of FDI flows relative to the size of its economy. 

FDI in Saudi Arabia has lagged behind the government's targets. Still, inflows should gain traction thanks to a strong pipeline of projects, an updated investment law and tax relief offered to global firms establishing regional headquarters in the kingdom.

Regional budgets this year are likely to balance fiscal discipline and sustainable economic trajectories with a strong focus on social development, including education and healthcare. We forecast aggregate GCC budget spending will rise by nearly three percent this year, after flatlining in 2024. 

Downward pressure

This comes despite downward pressure on government income. We forecast that Brent oil prices will average $72.90 per barrel this year, down from $80.50 in 2024, which is below estimated fiscal breakeven levels in Bahrain, Kuwait and Saudi Arabia.

We therefore expect a modest weakening in budget positions, but governments should be able to pursue their diversification agendas.

The overall financial positions of most countries in the GCC is strong, especially in Saudi Arabia, the UAE and Qatar. Debt levels are low, at below 40 percent of GDP. These are levels which allow countries to maintain favourable credit ratings.

Saudi Arabia and Oman have recently seen their ratings upgraded and have good access to capital markets, which they are likely to utilise. Saudi Arabia, for example, is again frontloading fundraising; this week, the kingdom issued dollar bonds worth $12 billion, after closing a $2.5 billion loan facility last week.

US trade policy under President Trump adds a layer of uncertainty to the forecast, but we see no direct threat of tariffs for the region.

While we think regional conflicts will remain unresolved, we see lower odds compared to last year of an escalation that would cause a major disruption to oil supplies.

Scott Livermore is chief economist at Oxford Economics Middle East