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The ICAEW’s Economic Insight Q1 2026 report, produced in partnership with Oxford Economics, has projected a 0.2 percent contraction in GCC gross domestic product for 2026 amid the protracted Iran conflict. This outlook reflects persistent challenges to energy trade, travel flows and overall investor sentiment against a global backdrop of moderating expansion. A robust recovery to 8.5 percent growth is anticipated for 2027, although the report cautioned that prolonged instability could temper that rebound.
Economies with greater dependence on international trade, tourism and logistics are expected to experience sharper contractions in the near term while those with more flexible export structures prove relatively resilient, the report found. Elevated oil prices have offered partial support but this has been more than countered by limits on output and shipments, with only Saudi Arabia and the UAE able to utilise alternative pipelines. GCC oil sector production is therefore forecast to fall 5.8 percent this year before expanding 18.2 percent in 2027.
Disruptions to the tourism sector are likely to prove more enduring, according to the assessment. International visitor numbers to the Middle East could decline between 11 and 27 percent, translating into as many as 38 million fewer arrivals and up to 56 billion dollars in forgone spending. Consequently non-oil activity across the GCC is projected to stagnate at 0.1 percent growth in 2026 before advancing 6.4 percent the subsequent year.
The analysis indicated that elevated uncertainty will encourage precautionary behaviour among consumers and firms, dampening domestic demand in the short run. Fiscal positions will vary, as higher prices bolster revenues in certain countries even as constrained volumes create difficulties elsewhere. Spending by governments is set to increase to safeguard stability and promote investment in strategic industries such as financial services, technology and healthcare.
This represents a marked downgrade from preceding expectations as the World Bank’s January 2026 Gulf Economic Update had projected 4.5 percent expansion for the GCC this year driven by strong non-oil sectors. In its April 2026 regional outlook the International Monetary Fund revised down forecasts for the area while projecting global growth of 3.1 percent for 2026 under assumptions of contained but ongoing conflict. The World Travel and Tourism Council has reported that the Middle East tourism industry was sustaining losses of approximately 600 million dollars per day at the height of the disruptions.
Speaking in the report, Hanadi Khalife, regional director for MEASA at 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 at Oxford Economics, 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.”
