GCC economy resilient amid regional conflicts, IMF reports limited impact

The regional geopolitical conflict indirectly affected the Gulf Cooperation Council (GCC) region but with limited impact, said Jihad Azour, Middle East and Central Asia director at the International Monetary Fund (IMF).

“The regional conflict are risks to the outlook… For the first year of conflict, the GCC region has been indirectly affected with limited impact,” Azour told Khaleej Times in an interview on Thursday.

“Among the indirectly affected countries in the region, including the UAE, the affected channels are trade and tourism, oil and gas, financial flows and market behaviour. The impact was short-lived and limited,” IMF’s regional director said during a media briefing on Thursday.

It has been one year since the Israel-Hamas war started, causing massive loss of human lives and economies. Recently, the conflict expanded to Lebanon and Iran. Thousands of people have died in the war, including many women and children.

The war has pushed oil prices higher, which indirectly benefits the oil-producing GCC countries. In addition, large sovereign wealth funds and strong non-oil sector growth have shielded the GCC from any direct impact on the economies. The UAE’s non-oil sector has also been performing very well in the past few years, boosting the per capita income of the residents.

Azour said countries in the Middle East region are slower in recovery from conflicts. “10 years after the conflict, countries in the region still suffer from the scars of the conflict and GDP per capita is 10 per cent lower than before the conflict,” added Azour.

In its regional outlook, the IMF noted that despite ongoing challenges from geoeconomic fragmentation, economies within the Gulf Cooperation Council (GCC) have remained committed to economic reforms.

“In turn, decisive policy implementation has boosted investment and labour force participation, and economic activity in the non-oil sector has helped counterbalance a contraction of the oil sector for most GCC economies. Outside the GCC, oil exporters have seen relatively stable growth, with some countries having benefited from elevated oil prices and robust production (Iran, Libya) and higher natural gas prices (Algeria),” the Fund said.

Among GCC economies, for instance, non-oil growth is projected to remain strong, at 3.7 and 4 per cent in 2024 and 2025, respectively, in part supported by ongoing diversification efforts. Nonetheless, economic diversification reforms will take time to yield results. While the interconnection between oil and non-oil sectors has decreased, the oil sector is forecast to maintain a significant role over the forecast horizon.

Meanwhile, most Mena oil exporters are expected to maintain generally low and stable rates of inflation. In GCC countries, headline inflation is projected to hover at about 2 per cent in 2025 and over the medium term.

With oil production experiencing a downturn this year and oil prices expected to decline gradually in the years ahead, current account balances for oil-exporting countries are expected to deteriorate over the medium term. Notably, the current account surplus for the GCC as a whole is projected to narrow to about 2.5 per cent of GDP over the medium term (down from above 6.1 per cent in 2024), a reduction of more than $63 billion compared to the 2024 estimate.