Saudi Arabia is expected to see real household consumption growth averaging 3% annually for the next six years, opening a significant window for firms in the consumer sector, according to a recent research note from Oxford Economics reviewed by EnterpriseAM. The UAE, Kuwait, and Qatar are forecast to see their real household consumption average 3.5% annually over the same period, giving the region an average growth rate of 3.4%, significantly outpacing the 1.7% growth expected in advanced economies.

Why does it matter? “The household sector and the prospects for consumers to outperform their international peers is important for the region's governments as they continue to focus their efforts to diversify activity away from oil and gas revenues,” the report read, adding that this is also “crucial for companies that are looking to invest in consumer-facing sectors.”

What’s behind the momentum? Rising living costs often weigh on economies, as households usually tighten their belts. However, inflation in the GCC – despite experiencing significant cost increases in recent years, especially during the pandemic —was less severe than elsewhere, according to the report. “This means that the erosion of GCC households' spending power was much lower than in advanced economies, helping to support strong consumption growth.”

For inflation, Oxford Economics expects inflation in the Kingdom to see a slight and moderate increase in 2026, before easing in 2027 and beyond.

REFRESHER- Inflation in the Kingdom is expected to remain restrained, with an annual average of 2.3% this year, before cooling to 2.2% in 2026, Riyad Capital has recently noted. Meanwhile, Capital Economics expects inflation to continue on a downward trajectory over the rest of the year, likely approaching 1% y-o-y by early 2026.

Want a deeper look into inflation trends in the Kingdom? read our recent analysis here.

Falling unemployment also plays a role: Healthy labor markets are also expected to boost household consumption growth in the region, with unemployment rates consistently falling across the GCC, after surging during the pandemic. This positive trend is supported by “removals of trading restrictions and buoyant domestic demand.”

Job growth plays the largest role in boosting aggregate consumption: Between now and 2030, Oxford Economics projects the annual employment rate in the GCC to slow down slightly compared to the previous decade. Despite this, the anticipated rate is still nearly 10 times higher than what is forecast for non-GCC advanced economies.

Expanding credit access in the region is also helping drive household consumption, especially as GCC governments are now including non-citizens in their credit initiatives, which results in a significant increase in demand. Personal lending in the Kingdom has rebounded from the dip in 2023, which followed the pandemic-era boom, according to the report. Meanwhile, growth in real estate lending to retail clients has tempered in recent years, falling from its peaks of 55% in 2020 and 50% in 2021 to just over 10% per annum in 2024. “Although significantly slower, the pace of growth is still robust despite tight monetary policy, which appears to be hampering demand for credit.”

Further interest rate cuts could boost demand further: Oxford Economics expects the US Federal Reserve to resume the easing cycle this month, projecting cumulative rate cuts of 125 bps by the end of 2026. GCC central banks are seen following suit by gradually lowering interest rates, providing an additional boost to domestic demand. Riyad Capital expects the Saudi Central Bank to cut interest rates by overall 100 bps in total until the end of 2026, following in the footsteps of the US Federal Reserve.

Risks ahead: Exposure to oil prices means that a deep downturn could affect consumer demand, though currently, it expects Brent crude to fall by 6% over the next four quarters before rebounding later. A 10% drop, however, would erode the level of real consumption by 0.74% per year, the report said.

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