GCC states to lead growth in Mena region, says IMF
The Gulf Cooperation Council (GCC) countries will outpace the wider Middle East and North Africa (Mena) regional growth this year and next, the International Monetary Fund (IMF) said on Thursday.
It said the direct impact of the global tariff war will be 'generally limited' due to tariff exemption on energy exports.
The IMF said in its latest report that the oil-exporting Gulf economies will expand 3.0 per cent and 4.1 per cent in 2025 and 2026, respectively, while the Mena region will grow by 2.6 per cent in 2025 and 3.4 per cent in 2026. Non-oil exporters' economies are likely to expand by 1.4 per cent and 1.8 per cent, respectively.
'In most GCC countries, favourable oil prices, domestic investment by the sovereign wealth fund (Saudi Arabia), and the implementation of ambitious diversification reforms contributed to increased private consumption and investment. Business environment reforms started to yield positive results, with inward foreign direct investment (FDI) increasing by nearly 2 percentage points of GDP during 2023–24 compared with pre-pandemic levels,' the Fund said in its Regional Economic Outlook on Thursday.
It said GCC growth is projected to strengthen in 2025 and 2026 because of the extension of Opec+ voluntary oil production cuts through April 2025, their more gradual phase-out through end-2026, and lower non-oil growth.
Non-oil growth is expected to be supported by ongoing infrastructure projects and diversification efforts, although it has been revised down compared to expectations in October, because of a recalibration of investment spending plans resulting from softer oil prices — further amplified by the decline in oil prices from the recent escalation of trade tensions — as well as the overall expected impact of heightened global uncertainty on consumer and business sentiment.
Tariff impact
'The direct impact of changes in tariffs is generally limited because of the tariff exemption on energy exports and the limited non-oil exports to the US. Over the medium term, growth is set to be supported by natural gas expansion in Oman, Qatar, Saudi Arabia, and the UAE,' it said in its outlook.
'We continue to assess the application of April outlook changes in the US tariff policy. While the direct effects are expected to be modest, giving limited trade exposure to the US and exemptions for energy products, the indirect effects could be more pronounced. Slower global growth could weaken external demand and remittances, and tighter financial conditions may prove challenging for countries with elevated public debt,' said Jihad Azour, director of the Middle East and Central Asia at IMF.
'Lower oil prices would worsen all exporting economies fiscal and external positions, although they would provide some relief for all importers. Some countries may benefit from trade diversion, but such gains are hard to predict and will occur in a broader environment of trade contraction. For Mena economies, these developments are adding to existing regional sources of uncertainty, including ongoing conflicts, pockets of political instability and climate vulnerability,' he said during a media briefing on Thursday.
Dubai, Abu Dhabi's growth
Azour projected that the Abu Dhabi and Dubai economies will grow 4.2 per cent and 3.3 per cent, respectively, in 2025. Next year will see even better growth for the UAE's two largest emirates Abu Dhabi and Dubai to increase 5.8 per cent and 3.5 per cent, respectively.
It earlier forecasted 4 per cent UAE growth for 2025, lowering from its previous forecast. 'Abu Dhabi is enjoying also the recovery in the oil sector, where the increase in oil production and also the massive infrastructure and investments that are currently taking place in Abu Dhabi. The UAE has demonstrated after Covid, especially now in the world of the high level of uncertainty, its capacity to manage successfully the uncertainty and show the strong and reliable capacity to address issues related to protecting lives and livelihoods and keeping the economy functioning,' he added.
With regard to Dubai, he said many sectors such as financial services are growing and their share in the economy is increasing.
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