GCC could be heading into recession, Oxford Economics says

The GCC is likely to slip into a war-induced recession this year, with GDP now projected to contract by 0.2%, Oxford Economics says in a research note. That’s a massive 4.6 percentage point downgrade from pre-war estimates as the Iran war enters its second month and reshapes the region's economic outlook.

Oxford is penciling in a two-month conflict with full closure at Hormuz, followed by another two months of relative recovery in which Hormuz would see volumes rebound to 50% of its pre-war levels.

The impact will be felt unevenly across the bloc, with Qatar, Kuwait, and Bahrain facing the sharpest downgrades. The UAE will also take a hit, the note says. Oxford thinks fallout from the conflict will include a long-term hit to both tourism and domestic demand, with recovery expected to be gradual and closely tied to how the security situation evolves.

Saudi Arabia and Oman are better positioned to weather the shock thanks to alternative export routes that bypass the Strait and allowing them to sustain some of the pre-war flows while benefiting from elevated prices.

While Qatar boasts solid buffers, it is set to take the biggest hit among the bunch, with USD 20 bn in annual revenue expected to vanish after Iranian strikes took the Ras Laffan LNG complex offline, taking up to 20% of Qatar’s LNG capacity out of service for as long as 3-5 years.

Beyond the GCC, Lebanon bracing for a possible 12-16% hit to GDP, according to a report from the Finance International Institute’s chief MENA economist Garbis Iradian seen by L’Orient Today.

First indicators

The UAE’s purchasing managers’ index (PMI) shrank in March to its lowest level since June 2021, falling to 52.9 from 55.0 the month prior. The March reading — which still indicates an expansion of non-oil business activity — reflects a slight softening of output that was still largely offset by businesses working through their sales pipelines and continuing to take on new business (albeit at a slower rate). The worst-hit sectors appear to be tourism, retail, and logistics, while tech and construction are less impacted.

Turkey’s PMI also took a hit, dropping to a five-month low at 47.9 — remaining in contraction territory — as Ankara’s non-oil businesses were impacted by higher inflation, supply chain delays, and an overall sense of uncertainty as a result of the war in their backyard.