ICAEW Report Projects GCC Economies To Contract By 0.2 Percent In 2026, Before Growing By 8.5 Percent In 2027

After a contraction of 0.2 percent in 2026, GCC economies are projected to grow by 8.5 percent in 2027, according to a new report produced by the Institute of Chartered Accountants in England and Wales (ICAEW), one of the world’s leading professional accountancy bodies. 

While the report’s near-term outlook for the region reflects the impact of the ongoing war in Iran, it also highlights that its underlying fundamentals remain supported by economic diversification and policy reforms, which are expected to drive a return to growth as energy flows normalize and non-oil sectors improve.  

The report noted that energy trade disruption is set to have the most immediate impact on GCC economies, outweighing any gains from higher oil prices. While oil markets have been volatile since the war started, the commodity’s transit through the Strait of Hormuz has also been significantly constrained by security risks and rising insurance costs. These energy flows are unlikely to begin recovering before May, with disruptions expected to ease gradually through the rest of 2026 

Recovery is expected to begin once safe passage through the Strait resumes, the report added. The GCC oil sector is projected to contract by 5.8 percent this year, broadly in line with the decline recorded in 2017, before rebounding sharply in 2027, with growth expected to reach 18.2 percent. Over the same period, non-oil sector growth is projected to remain subdued at 0.1 percent in 2026 before recovering to 6.4 percent in 2027.  

In an interview with Inc. Arabia, Hanadi Khalife, Regional Director of Middle East, Africa, and South Asia at ICAEW, said that   the growth projections presented by the report should be considered in light of the conditions driving both the expected contraction and recovery. “The 18.2 percent energy surge in 2027 is largely a technical correction,” she said. “Much of it reflects suppressed output coming back online once disruption to the Strait of Hormuz eases, so it's worth factoring that in when reading that figure.” 

Khalife pointed instead to broader economic indicators as a more meaningful gauge of the region’s trajectory. “The more telling number is non-oil sector growth, which we expect to recover to 6.4 percent in 2027,” Khalife said. “That recovery, if it holds, actually validates the diversification work GCC governments have been doing. The underlying diversification momentum is still there. The indicators worth watching are private sector job creation in tech, financial services, and healthcare, foreign direct investment flows back into non-energy sectors once sentiment stabilizes, and tourism recovery, given how significantly visitor spending is being impacted this year. Those will give a fuller picture of diversification progress.”   

 Hanadi Khalife, Regional Director of Middle East, Africa, and South Asia at ICAEW. Image courtesy ICAEW.

Beyond energy, the report indicates that the short-term impact will vary across GCC economies, depending on each country’s exposure to international trade, tourism, and logistics. Tourism and travel are among the most affected sectors, as airspace disruptions and flight cancellations have limited international arrivals. Visitor numbers to the Middle East are now forecast to decline between 11 percent and 27 percent this year, compared to an earlier projection of 13 percent growth.  

This downturn is expected to weigh on non-oil activity, with growth projected at 0.1 percent in 2026 before recovering to 6.4 percent in 2027 as travel resumes and confidence improves. In absolute terms, the decline translates to 23-38 million fewer international visitors as well as a loss of $34 billion to $56 billion in visitor spending. While flight activity is gradually recovering across the region, the impact on travel and tourism is expected to persist in the near term, with a broader recovery tied to improvements in regional stability and travel confidence.  

Against this backdrop, Khalife said restoring confidence and maintaining liquidity will be critical to supporting demand and business activity. “Consumer spending growth has been cut to just 1.4 percent this year as households turn cautious, so measures that protect purchasing power and keep credit flowing to businesses will matter most right now,” she said. “This crisis has also highlighted the cost of over-reliance on single trade routes. The disruption to shipping through the Strait of Hormuz has driven up import costs across the region, and building greater resilience into trade infrastructure should be a priority for governments going forward.”   

The report also noted that security concerns are expected to increase caution among businesses and investors in the near term, likely leading to slower real estate activity, particularly in internationally exposed markets such as Dubai. However, there's no lasting impact anticipated on the GCC’s appeal as a global business and investment hub. The region’s credit profiles and financing outlook are also not expected to face lasting damage. Gulf sovereigns and government-related entities are likely to return to international debt markets once conditions stabilize to fund long-term development plans. Saudi Arabia has already led issuance this year, raising $11.5 billion in January as part of its approved $58 billion borrowing program. 

Rerouting of goods and disruption in the Strait are also expected to push up costs, prompting a 0.2 percentage point upward revision to the GCC’s annual consumer price index inflation forecast to 2.5 percent in 2026. Inflationary pressures are expected to remain temporary, with average inflation easing to 2.4 percent in 2027. However, a slowdown in net inward migration due to security concerns could increase wage pressures, posing a risk of more persistent inflation. The report also noted that financial conditions have tightened as investors price in higher geopolitical risk, which could weigh on private foreign direct investment in the short term. However, the region’s underlying investment case remains intact, supporting expectations of a relatively quick recovery. Equity markets across the GCC have diverged, reflecting differences in exposure to disruption. Markets in Dubai and Abu Dhabi have declined more sharply since the conflict began, given their reliance on trade, tourism, and logistics, while Oman and Saudi Arabia have shown greater resilience. 

In this environment, Khalife said companies that continue allocating resources during the slowdown are likely to emerge stronger. “For the private sector, the businesses that will lead the recovery are those investing through the slowdown rather than just cutting costs,” she said. “Those that hold their nerve and maintain their growth capabilities now will be better placed to move quickly when conditions improve.”  According to Khalife, maintaining flexibility without compromising long-term positioning will be essential to capturing the next phase of growth. “The main thing is to avoid making permanent decisions in response to what is expected to be a temporary shock,” she said. “We are forecasting 8.5 percent GCC gross domestic product growth in 2027, and the businesses that capture that rebound will be the ones that preserved their capacity to act. In the near term, protect cash, reduce discretionary spend where you can, and deepen relationships with your best customers. Reliability becomes a real competitive advantage when confidence is fragile.” 

Khalife also highlighted where capital is likely to be directed once recovery begins. “Looking further ahead, several areas stand out,” she said. “Once recovery takes hold, we expect to see a ramp-up in capital allocation toward artificial intelligence (AI) and technology, financial services, and healthcare—sectors the GCC was already building competitive strength in before this shock. The conflict has reinforced just how strategically important these sectors are to the region's long-term growth. For SMEs and startups that can align themselves to those sectors, there is a real opportunity on the other side of this.”