The GDP of the Gulf countries is expected to grow by 8.1% by 2027, supported by the return of energy trade to normal paths, growing demand for travel, and restored confidence in the business environment. This forecast comes in the wake of an expected contraction of 2.4% during 2026, which is attributed to regional turmoil that has cast a shadow on energy exports, the tourism sector and investment decisions, according to the “Economic Insights: Middle East – Second Quarter 2026” report, issued by the Institute of Chartered Accountants in England and Wales (ICAEW) In cooperation with “Oxford Economics”.
These forecasts are based on the report’s basic scenario, which takes into account anticipated developments, including the formal peace agreement expected to be signed between the United States and Iran on June 19, 2026.
This contraction is due to the extent of the disruption in energy production operations and trade flows, as the oil sector in the Gulf countries is expected to record a decline of 14.5% during the year 2026, in its largest decline in decades. In contrast, the sector is expected to achieve a strong recovery of 23.5% in 2027, driven by a recovery in production after the recent sharp decline.
According to the report, expectations indicate that Saudi Arabia and the Sultanate of Oman will be the least affected by the negative repercussions during the current year among the economies of the Gulf countries, with their economies likely to continue to grow. The ability of Saudi Arabia and the UAE to reroute a portion of exports through alternative pipelines has contributed to reducing the economic impacts compared to their counterparts of oil producers in the region. In terms of oil prices, the average price of Brent crude is expected to reach about $90 per barrel in 2026, compared to previous estimates of $90.2 three months ago.
Regarding non-oil activities, May PMI data revealed strong performance for both Saudi Arabia and the UAE, with production growth reaching its peak in three months, driven by improved domestic demand growth. In general, it is expected that the non-oil sectors in the Gulf countries will witness a contraction of 1.1% during the year 2026, and will return to growth and recovery during the year 2027 and beyond.
It is worth noting that Saudi Arabia’s GDP data for the first quarter of 2026 revealed the mechanism of transmission of economic shocks, as growth slowed to reach 3% on an annual basis, coinciding with a decline in oil activities by 6.8% on a quarterly basis, as a result of the impact of navigation in the Strait of Hormuz late in the same quarter. As for non-oil activities, they recorded a slight growth of 0.3%, coinciding with an increase in government spending, which reflects relative flexibility in the local economy, as the immediate negative impacts were concentrated in the energy sector, without extending widely to the rest of the economy’s sectors.
The travel and tourism sectors in the Gulf countries were severely affected by regional tensions, as expectations indicate that the number of visitors to the region will decrease by about 30% during the year 2026. The report estimates that this decline represents a significant decline in the number of visitors by tens of millions, with the subsequent loss of billions of dollars in tourism spending across the region.
The recovery of the tourism and travel sectors is likely to take longer than the energy sector, given that tourism demand is closely linked to trust and accessibility factors. However, the medium-term outlook for the sector remains positive: thanks to advanced infrastructure and continued strategic investments in enhancing tourism capabilities, the region has a solid base that qualifies it to regain its strong momentum as soon as conditions improve.
Gulf governments are expected to continue increasing their spending during the current year, while fully committing to their strategic priorities in the financial services, technology, and healthcare sectors. Given the relatively low public debt levels of most of these governments, financing risks remain under control and within safe limits. In the same context, Bahrain succeeded in completing the issuance of sovereign bonds worth one billion dollars during the month of June, amid strong demand that exceeded the size of the offering. This issuance is the first of its kind in the region since the outbreak of the conflict, which reflects the strength of the creditworthiness of the Gulf countries and confirms the continued confidence of investors in their economies.
In addition to the above, the liquidity management measures taken by the UAE Central Bank contributed to alleviating immediate concerns in local markets. The report confirms that there are no long-term negative effects on the strength of the region’s credit files, with expectations that Gulf governments and their affiliates will return to global debt markets as soon as the situation stabilizes.
Despite the recent unrest, inflationary pressures remain relatively under control across the region, with inflation expected to average 2.6% in 2026, mainly driven by higher food prices, according to the report. However, these price pressures are likely to remain temporary, with average inflation expected to fall to 2.1% in 2027, as supply-related buffers fade.
