IMF sees GCC’s non-oil economy shrinking 0.8% this year as war spreads beyond oil

The GCC’s non-oil economy is set to contract 0.8% this year before growing 4.5% in 2027, according to the IMF’s Regional Economic Outlook report for the Middle East and Central Asia (pdf). The bloc as a whole is forecast to shrink 4.8% this year before rebounding 9.1% in 2027, a 6.8 percentage point cut from the 2% growth the IMF expected in April.

The rebound next year won’t make up for lost ground. Jihad Azour, director of the IMF’s Middle East and Central Asia Department, said last week that Gulf output would still be below its pre-war trajectory in 2030, citing lasting damage to some sectors, disrupted infrastructure, and the extra spending needed to build resilience.

The Gulf’s financial cushions are getting thinner. The GCC’s combined fiscal deficit is set to widen to 2.3% of GDP this year from 0.8% in 2025, and its current account surplus to narrow to 1.3% of GDP from 5%. Subsidies, price controls, and currency pegs have limited how much of the jump in commodity prices reaches consumers, but at a fiscal cost. Meanwhile, GCC inflation is projected to rise to 2.7%.

The squeeze varies by country. The World Economic Outlook last week projected that the UAE’s current account surplus will shrink to 4.8% of GDP this year from 13.3% in 2025, while Qatar’s surplus is expected to narrow to 7.1% from 16.4%. Meanwhile, Kuwait’s surplus is expected to narrow to 18.3% from 22.7%, and Bahrain’s surplus is forecast to shrink to 3.6% from 5.0%. Saudi Arabia’s deficit is projected to widen to 3.5% from 2.6%. Oman is the exception, with the report expecting it to swing from a 1.1% deficit to a 5.0% surplus, in line with it being the only GCC economy still growing.

REMEMBER- Last week’s World Economic Outlook put the Gulf’s biggest economies on track to shrink this year, assuming the Strait of Hormuz begins reopening in March. Saudi Arabia is forecast to contract 3.3% this year before growing 7.9% in 2027, while the UAE is expected to shrink 3.9% before expanding 7.7%. Qatar, Kuwait, and Bahrain face double-digit contractions of 15.6%, 16.7% and 11.3%, followed by rebounds of 18.8%, 17.1% and 13.9%. Oman is the GCC exception, growing 4.1% this year. Outside the Gulf, Egypt is forecast to grow 5.1% this year and 4.7% in 2027.

MARKETS THIS MORNING-

Asian markets are in the red in early trading as the tech sell-off spreads from Wall Street. Japan’s Topix is down 2.2%, South Korea’s chip-heavy Kospi 1.5%, and the Shanghai Composite 1.3%, while Hong Kong’s Hang Seng is little changed. US futures are slightly lower.

THE CLOSING BELL-

The ADX fell 0.7% yesterday on turnover of AED 1.1 bn. The index is down 2.9% YTD.

In the green: Gulf Cement Co. (+15.0%), Aram Group (+12.0%), and Eshraq Investments (+3.6%).

In the red: Fujairah Cement Industries (-5.0%), United Arab Bank (-4.7%), and GFH Bank (-4.6%).

Over on the DFM, the index fell 0.7% on turnover of AED 688.9 mn. Meanwhile, Nasdaq Dubai was down 1.3%.