IMF: Gulf Economy to Contract 4.8% Before Bouncing Back by 9.1% in 2027
The IMF expects the Gulf economy to contract by 4.8% in 2026 amid falling oil and gas production, before rebounding by 9.1% in 2027 if the war stops.
The International Monetary Fund lowered its forecast for Gulf economies, projecting a contraction of 4.8% in 2026 following 4.5% growth in 2025, before growth rebounds to 9.1% in 2027, according to the Regional Economic Outlook report released in Dubai on Tuesday. The Fund said Thursday that the new forecast is 6.8 percentage points lower than a previous estimate of 2% growth in April.
The Fund attributed the contraction to the Iranian war and the disruption it caused in energy production, shipping, tourism, trade, and confidence. Jihad Azour, Director of the IMF's Middle East and Central Asia Department, stated that the region suffered a severe shock. Oil and gas production in affected Gulf countries fell from 33 million barrels per day in February to about 19 million in May, while Qatar's production dropped by up to 86%. The Fund expects the non-oil economy to contract by 0.8% this year before growing 4.5% in 2027.
Forecasts vary across Gulf countries, with the Fund projecting Kuwait to contract by 16.7%, Qatar by 15.6%, Bahrain by 11.3%, the UAE by 3.9%, and Saudi Arabia by 3.3% in 2026, while Oman's economy grows by 4.1% thanks to its geographic location and non-oil reforms.
The Fund expects oil prices to average around $96 per barrel in 2026 and $87 in 2027, peaking near $110 in late 2026. It points to the Gulf current account surplus shrinking to 1.3% of GDP from 5% in 2025, the budget deficit widening to 2.3% of GDP from 0.8%, and inflation rising to 2.7%. The recovery remains conditional on the cessation of military operations and the resumption of shipping through the Strait of Hormuz in early 2027, with Saudi growth projected at 7.9% in 2027 compared to 7% for India.
What do these terms mean?
Contraction: A decline in an economy's Gross Domestic Product (GDP) over a period of time, usually measured as an annual percentage.
Budget Deficit: The difference between government spending and revenue when spending exceeds revenue.
Current Account: A record tracking the flows of trade, services, income, and transfers between a country and the outside world.
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