Gulf economies will rebound 5.8 per cent in 2027 after shrinking by 6.4 per cent this year due to higher oil prices driven by renewed escalations in Saudi Arabia and the wider region, the ICAEW and Oxford Economics expect.
According to the latest findings in the Economic Insight: Middle East Q3 2026 report, GCC economies will contract after renewed conflict in the region, namely the Houthi attacks which disrupted Saudi Arabia’s energy export infrastructure, thus damaging the critical East-West pipeline, and pushing Brent crude above $100 a barrel.
However, it predicts that Gulf economies will rebound in the next year as energy markets gradually stabilise.
Similarly, a report by Capital Economics stated that Gulf economies will see large rebounds next year after contracting at a double-digit rate this year, although it will be contingent on the normalisation of transit routes through the Strait of Hormuz.
The UAE in particular is “well placed to provide fiscal support to boost non-oil sectors,” it said, with the real estate and tourism sectors falling behind other sectors.
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Energy sector set to recover
The ICAEW report noted that the GCC’s hydrocarbon sector is forecast to rebound by 25.9 per cent in 2027, following a 26.9 per cent contraction this year.
The UAE is set for a strong 2027, with growth forecast at 6.6 per cent, reversing a 1.5 per cent contraction this year, the report stated. Qatar is projected to record the region’s fastest expansion at 11.5 per cent, reflecting its particular exposure to Strait of Hormuz-linked energy exports.
Saudi Arabia’s economy is projected to return to growth of 4.7 per cent in 2027, following a 4.6 per cent contraction this year, with the swing reflecting an expected gradual normalisation in the oil sector as this year’s disruption eases.
The report notes that options for rerouting energy exports have narrowed in recent weeks, with Saudi Arabia’s own East-West pipeline, previously seen as a key workaround, coming under renewed pressure, alongside separate disruption to shipping through Red Sea ports.
Non-oil activity to build momentum
The non-oil sectors are forecast to grow by 3.3 per cent in 2027, following a 1.9 per cent contraction this year. The report expects non-oil momentum to build as consumers benefit from improving confidence and easing price pressures. Recent indicators point to some underlying resilience already: Saudi Arabia’s non-oil private sector expanded further in August, with the PMI reaching a six-month high of 53.8, while similar surveys in the UAE and Kuwait also pointed to continued non-oil recovery despite ongoing regional uncertainty.
Tourism remains among the sectors most exposed to the conflict. In the UAE, where the sector contributes around 13 per cent of GDP, visitor numbers are projected to fall by 46.7 per cent this year before rebounding by 30 per cent in 2027 and a further 59 per cent in 2028. The report said that a full recovery to pre-conflict levels is not expected before 2028.
Inflation to ease
Government spending in the region is also expected to slow to 2.6 per cent in 2027 from 7.4 per cent in 2026, though it’s expected to pick up again in 2028.
Inflation across the Gulf is expected to ease only modestly to 2.1 per cent in 2027, from 2.5 per cent this year, as food and beverage costs continue to add pressure on households.
Source: Khaleej Times