GCC Set for 6.8% Rebound: Can Diversification Deliver?

Tim Elliott (0:00)

This is the Morning Drive, the GCC economy now, facing a sharp downturn in 2026, of course, but Oxford Economics is forecasting a rebound next year. Latest research projects 6.8% GCC growth in 2027 The UE is expected to grow 6.6% as energy exports recover and non-oil activity gains momentum. However, with geopolitical risks still disrupting trade and tourism, the recovery could also become a turning point for economic diversification. Joining us once again back in the studio, Azad Zangana is the head of GCC Macroeconomic Analysis at Oxford Economics. Good to see you.

Azad Zangana (0:46)

Thank you for having me.

Tim Elliott (0:46)

Good to have you back.

New research, and I guess all being well, you expect a major, at the moment, it seems like a major upturn in fortunes next year after a cooling off period this year. That's one way of putting it. When you look at the forecasting models for 2027, Azad, what are the primary structural and cyclical engines driving this kind of surge in GDP growth that you anticipate?

Azad Zangana (1:16)

So, it's important to remember that the downturn to begin with is not cyclical by nature. This isn't caused by a typical kind of credit cycle, if you will. We are responding to quite a major external shock, which is essentially the US-Israel war with Iran.

Now, we've kind of moved away from thinking that this is going to suddenly end any time soon.

We think, eventually, we might get some kind of regional agreements to allow things to start to settle down. But it seems that volatility is going to remain in place for quite a long time. So, when it comes to the drivers of the recovery, we're essentially focused on the areas that have suffered because of the war. So, number one, shipping and the exports of oil and gas from the region. We assume that, eventually, we will see some kind of an accident that allows some ships to exit. And we'll have periods where things look fine, and we've got some kind of regional ceasefire, and ships are coming in and out. And then, all of a sudden, we'll get some kind of disruption to that. So, it'll be interrupted quite frequently. And because of that, we don't really see a full recovery coming through, at least not until some new structural changes come about, which we can come back to a bit later on. So, that's the oil and shipping. But then, there's also the tourism side, which we think will take longer to recover. But then, otherwise, day-to-day activity, as I'm sure your listeners have seen from the traffic on the roads right now, it feels like it's come back to normal already. So that recovery seems to be coming back.

Tim Elliott (2:52)

It really does. I mean, my benchmark is traffic. And we kind of laugh about that. But it's as good a benchmark as any in some ways, isn't it? It seems like we are in a city that is bustling and busy and back to some kind of equilibrium, I guess.

So you're forecasting 6.8% GCC growth next year, an estimated 5.4% contraction this year. What are going to be the big drivers of that kind of rebound?

Azad Zangana (3:20)

So as we said, oil and gas exports is the biggest area that we need to focus on. And we're not expecting to see a full rebound next year, but it's going to go quite a long way to helping overall GDP growth for the wider economy.

We do expect to see quite an improvement as well in travel and tourism. I mean, at the moment, some of the statistics that we're looking at that focus on passenger volumes, tell us that the volume of passengers, and again, we're just by sort of amount traveled as well, that's still down by about 10% year on year, which is still a really big improvement on the 56% plus drop that we saw very early on. But that's going to take time to come back. I mean, ultimately, if we think that the regional conflict might rumble on, even if it's in a very low intensity way, then that will still deter some holiday makers from the region.

Tim Elliott (4:19)

Yeah, for sure. I mean, how much is genuine economic recovery? Because you hear that figure 6.8% and it's, oh, that seems bullish. But when you factor in the week 2026, the eyes kind of, your eyes drop, don't they?

Azad Zangana (4:37)

Yeah, I mean, normally we would expect three to 4% growth for the region per year.

And for this year, we're expecting a decline of 5.4%. So that's already about an 8-point gap from what we would normally expect to see. So even the 6.8% isn't great in that the recovery isn't completed next year. Probably by the middle of next year, we get back to kind of normal levels of GDP growth, but then you've still got a bit of catch-up growth to go on to. So that's why we've got nearly 7% growth the following year as well. So this continues well into 2028