GCC Economy in 2025: GDP, Inflation, Oil and Non-Oil Sectors

The Gulf Cooperation Council (GCC) economy is projected to grow 3.2 percent in 2025, led by a rebound in oil output, stable inflation, and continued investment in non-oil sectors.

While shipping disruptions in the Red Sea have impacted trade with Europe, Gulf countries are redirecting exports to Asia.

Debt levels vary across members, but inflation remains contained due to subsidies and currency stability.

The GCC economies are projected to grow by 3.2 percent in 2025 and accelerate further to 4.5 percent in 2026, according to the World Bank’s Gulf Economic Update released in June 2025. This is a steep rise from 1.7 percent growth in 2024. It is due to the combination of easing oil supply restrictions, non-oil sector expansion, and fiscal policies.

But the report cautions that while economic prospects are improving, this momentum will depend on how well governments implement fiscal policies, invest in high-impact sectors, and maintain macroeconomic stability amidst uncertain global trade and tariff environment.

Oil output recovery and public investment drive growth

The rollback of Organization of the Petroleum Exporting Countries (OPEC+) voluntary production cuts has eased supply constraints on oil. As per the report, oil Gross Domestic Product (GDP) is expected to grow steadily in 2025 and create fiscal room for public expenditure.

The non-oil economy expanded by 3.7 percent in 2024, due to improved infrastructure spending, high private consumption, and structural reforms. This growth is expected to continue into 2025, with the aid of investments in logistics, digital services, renewable energy, and human capital.

But external pressures remain. The Red Sea shipping crisis has disrupted regional supply chains, affecting oil and gas exports from GCC countries to Europe. Traffic through the Strait of Hormuz has dropped by approximately 6 percent between November 2023 and April 2025, compared to the pre-crisis benchmark. This decline is largely due to a 15 percent contraction in seaborne oil trade. To manage this, exporters like Saudi Arabia and Qatar have rerouted shipments around the Cape of Good Hope and expanded exports with Asian emerging markets.

Countercyclical spending and moderate fiscal multipliers

World Bank economists note that fiscal multipliers in the GCC remain below one, meaning every dollar spent yields less than one dollar in growth. But during economic slowdowns or recessionary period, government spending in the GCC region helped in maintaining the stability.

Important findings from the report:

• Public investment in infrastructure, health, and education has helped reduce economic ups and downs;
• A one-time percentage point increase in capital spending contributes around 0.07 percent to potential output of non-hydrocarbon sectors; and

Country-level growth outlooks

Saudi Arabia

Saudi Arabia is forecast to grow by 2.8 percent in 2025, recovering from 1.3 percent in 2023. Growth will be led by an improvement in oil GDP, projected to reach 6.7 percent in 2026, as the country exits the OPEC+ production restraint. On the other hand, non-oil GDP is projected to grow by 3.6 percent annually between 2025 and 2027.

United Arab Emirates

The UAE is expected to record 4.6 percent growth in 2025, with non-oil sectors playing a dominant role. The forecast attributes this strength to ongoing public investment, international partnerships, and reforms that boost governance and business competitiveness. Increase in oil production will also contribute to the GDP rise from 2026 onward.

Kuwait

Kuwait is projected to bounce back to 2.2 percent growth in 2025, recovering from a -2.9 percent contraction in 2024. This turnaround is linked to the removal of oil output restrictions and the launch of large-scale infrastructure projects. The country’s medium-term growth will depend heavily on whether it can accelerate reforms and reduce oil dependence.

Qatar

Qatar’s growth is expected to hold steady at 2.4 percent in 2025 before accelerating sharply to an average of 6.5 percent in 2026-2027. This increase will be due to the North Field liquefied natural gas (LNG) expansion, which could increase LNG output by 40 percent. Non-oil contributions would come from tourism, education, and public services.

Oman

Oman is forecast to grow 3 percent in 2025, with gradual acceleration to 4 percent by 2027. Oil GDP is expected to rise 2.1 percent in 2025 and non-oil sectors like construction and manufacturing could expand 3.4 percent. The World Bank brought in attention Oman’s Medium-Term Fiscal Plan (2020–2024) as a model for responsible fiscal management and successful debt reduction.

Bahrain

Bahrain’s growth is expected to stabilize at 3.5 percent in 2025, improving from 3 percent in 2024. It would be driven by the completion of BAPCO refinery upgrade and profit in infrastructure, fintech, and tourism sectors. World Bank forecasts growth to average 2.9 percent in 2026-2027 as non-oil contributions expand under Bahrain’s Economic Vision 2030.

Sovereign debt shows diverging trends

Performance on managing public debt varies across the GCC. Oman reduced its public debt by 2.3 percentage points of GDP in 2024, and Qatar and the UAE maintained stable debt ratios through fiscal discipline. In contrast, Saudi Arabia, Bahrain, and Kuwait saw increases in debt due to lower oil receipts and higher public spending.

• Saudi Arabia’s debt rose by 1.6 percentage points of GDP;
• Bahrain saw a 1.5-point increase and is projected to hit 131 percent of GDP by 2026; and
• Kuwait recorded the largest jump of 4.1 percentage points in public debt.

The World Bank classified the near-term outlook for government debt as broadly stable, except in Bahrain, where further increases could dampen fiscal space.

Inflation and monetary stability

Despite global inflationary pressures, GCC inflation remains contained. Headline inflation in the region averaged 2.0 percent in 2024, down from 2.2 percent in 2023. A combination of currency pegs to the US dollar, interest rate adjustments, and continued use of energy and food subsidies helped contain consumer prices.

• Saudi Arabia and the UAE experienced modest Consumer Price Index (CPI) increases which was mostly linked to housing costs.
• Bahrain, Kuwait, and Oman saw price pressures due to rising spending and external trade frictions, but overall inflation control remains effective.

Risks that could weigh on growth

Despite the positive trajectory, as per the report, several headwinds could derail projections if not addressed:

• Global trade uncertainty and US tariff threats could cause economic slowdowns and thereby reduce exports and foreign investment;
• Oil market volatility continues to pose fiscal planning challenges;
• The effectiveness of non-oil investments will depend on how well governments manage project execution and returns;
• Structural issues such as youth unemployment and demographic imbalances could strain long-term development.

Climate change, migration trends, and water scarcity are also identified as emerging pressures that require active interventions by the GCC countries.

Outlook

The growth prospects in 2025 and 2026 look promising. But unlocking the full potential of the Gulf economies depends on how governments handle spending, trade and non-oil sector development. Each country faces a unique set of challenges but also opportunities to build future-ready economies with the help of right policy and business support.

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