GCC economies have proven resilient to external shocks such as regional conflicts and oil production cuts over the past period, according to a report written by analysts at the International Monetary Fund, who expected positive performance for the region in the near term amid balanced risks.

“The repercussions of the Red Sea tensions on Gulf economies have been limited so far, with trade, investment and tourism flows largely unaffected,” according to the report prepared by Amin Mati, the IMF’s mission chief to Saudi Arabia and head of the GCC Department, and Ken Miyajima, chief economist in the GCC Department.

Port exports recover
The IMF analysts noted a recovery in daily export volumes from the region’s major ports, although they remain at historical lows, as some countries, such as Kuwait, quickly adapted to navigation disruptions thanks to the flexibility of their navigation and storage networks.

“High-frequency indicators point to a rapid recovery in portfolio flows to the region, supported by strong reform momentum after a dip in Q4 2023, while inbound tourism remained strong despite the Gaza conflict, with visitor numbers hitting record levels in some countries such as Qatar and Saudi Arabia.”

Tourism is a key pillar of the Kingdom’s economic diversification efforts, which has taken measures such as facilitating visas and increasing entertainment events to support the sector, and has raised its tourism target to 150 million visits annually by the end of the current decade, after achieving the previous target of 100 million visits seven years ahead of schedule under Vision 2030.

The Fund’s analysts said that progress on reforms such as improving the business climate, human capital, and digital transformation have contributed to supporting Gulf countries’ efforts to diversify their economies, stressing the need to intensify these reforms to achieve governments’ visions, in addition to continuing efforts to integrate trade and finance as a priority to fully benefit from the reforms.

Positive outlook
The report expects real growth for the Gulf region’s economy in general to reach 3.5% next year, accelerating from an estimated growth of 1.4% this year, and real growth to reach 4.6% in Saudi Arabia and 5.1% in the UAE in 2025, in line with the Fund’s expectations last October.

The report said that strong non-oil activities supported growth in the Gulf countries in general, thanks to strong spending on projects and the implementation of reforms aimed at supporting economic diversification efforts, while the lack of significant trade or financial links between the region and Gaza or Israel contributed to limiting the impact of the conflict.

It added that the hydrocarbon sector is expected to receive support in the near term from the expected increase in oil production during the second quarter of 2025 and the expansion of natural gas production, while local economic activity will benefit in the medium term from the non-oil sector, which will continue to grow.

The OPEC+ alliance decided earlier this month to postpone the gradual cancellation of oil production cuts until April of next year, after it was scheduled to start in January.

Real non-oil growth is expected to reach 4.4% in Saudi Arabia and 4.5% in the UAE next year, after an estimated growth of 3.7% and 5.3% for the two countries, respectively, during the current year, according to the report.

Analysts pointed to the stability of inflation rates, which fell by about half in 2023 to below 2% at the same levels, supported by monetary and fiscal policies. They added that enhancing synergies with the International Monetary Fund would complement the efforts of the Gulf countries to enhance macroeconomic stability and resilience.

Balanced risks
The economies of the Gulf region face balanced risks in the near term, according to the report, which pointed to positive factors, including a higher-than-expected increase in oil production due to the cancellation of the OPEC+ alliance to cut production at a faster pace, increasing natural gas production, rising commodity prices, accelerating the implementation of investment projects and structural reforms, and the rapid easing of monetary policy in advanced economies.

However, the report also pointed to negative factors on the region’s prospects, including the impact of a global economic slowdown on oil and other exports, especially in China, and the continuation of high interest rates for a longer period, which will restrict growth and may affect public finances and financial stability. “In addition, the increased activity in major projects may lead to the return of inflation, while the conflict in Gaza, if it continues for an extended period or expands, may affect the region through fluctuations in hydrocarbon prices, reducing exports, declining tourism and investment, and raising the cost of external financing,” according to the report.