• GCC GDP forecast to contract by 0.2% in 2026 following a downward revision from earlier growth expectations
• Trade, tourism and externally exposed sectors face the most significant disruption
• Strong rebound expected in 2027, contingent on stabilisation

United Arab Emirates, 27 March 2026: GCC economies are forecast to contract this year as recent regional escalations continue to weigh on economic activity, according to ICAEW’s latest Economic Insight Q1 2026 report, produced in partnership with Oxford Economics. Set against a softening global growth backdrop, the report forecasts GCC GDP to decline by 0.2% in 2026, reflecting sustained disruption to energy trade, travel and investor sentiment. However, the report also indicates a strong recovery, with GCC GDP forecast to expand by 8.5% in 2027.

The pace and strength of recovery will depend on how conditions evolve in the coming months, with a prolonged disruption presenting a more challenging outlook.

Within the current conditions, economies with greater exposure to international trade, tourism and logistics, are likely to see more pronounced near-term adjustments. While others are expected to remain relatively more resilient, reflecting differences in economic structure, export flexibility and exposure to global demand.

Energy markets remain central to the outlook. Elevated oil prices have provided some support; however, this has been offset by constraints on production and export volumes, with only Saudi Arabia and UAE able to export through alternative pipelines. GCC oil sector output is forecast to decline by 5.8% in 2026, before recovering strongly by 18.2% in 2027.

Beyond energy, the effects on tourism and travel are predicted to be more sustained. Airspace disruption and weaker sentiment have led to a decline in international visitor flows, with arrivals to the Middle East projected to fall by between 11% and 27% this year. This equates to up to 38 million fewer visitors and as much as $56bn in lost spending.

This will weigh on broader non-oil activity across the region, with growth projected to remain largely flat at 0.1% in 2026, before recovering to 6.4% in 2027 as confidence returns.

Heightened uncertainty is expected to drive more cautious consumer and business behaviour in the near term, with precautionary savings rising and investment activity softening. Financial markets have already reflected this shift, particularly in more internationally exposed markets.

From a fiscal perspective, the impact will vary across the region. Higher oil prices will likely support government revenues in some economies, while others may face pressure due to constrained export volumes. Government spending is expected to increase across the GCC as authorities support economic stability prioritise strategic sectors including financial services, technology and healthcare.

Commenting on the findings, Hanadi Khalife, Regional Director of MEASA, ICAEW, said: “Recent regional developments have created a more challenging near-term environment for GCC economies, with disruption to energy trade and softer confidence weighing on activity. While this has placed pressure on growth in the short term, the region’s underlying fundamentals remain strong, supporting a recovery as conditions stabilise.”

Azad Zangana, Head of GCC Macroeconomic Analysis, added: “The impact across the GCC reflects differences in economic structure and exposure to external demand. While energy markets are anticipated to recover as trade flows normalise, sectors such as tourism may take longer to recover, which could weigh on diversification momentum in the near term. The strength of the rebound will depend on how quickly stability returns and confidence is restored.”

• Economic Update: Middle East