RIYADH: Short-term gains in non-oil sectors are expected to help Gulf Cooperation Council countries offset the negative impact of prolonged OPEC+ crude production cuts, according to an International Monetary Fund analysis.
In its latest report, the organization projected that the economy of the GCC region will grow by 3 percent in 2025, accelerating to 4.1 percent by 2028.
The analysis affirms the progress of the economic diversification journey adopted by the group’s member states, including Saudi Arabia and the UAE, which aim to strengthen their non-oil sectors and reduce their decade-long reliance on crude revenues.
“In the GCC, robust non-oil activity linked to diversification efforts helped to offset the negative impact of extended OPEC+ production cuts,” said Jihad Azour, director of IMF, Middle East and Central Asia Department.
To maintain market stability, OPEC+ has been cutting output by 5.85 million barrels per day, equal to about 5.7 percent of global supply, since 2022.
In March, the oil producers’ alliance decided to proceed with a planned April oil output increase, with a monthly rise of 138,000 bpd.
Regional outlook
In the latest report, the IMF projected that the economy of the Middle East and North Africa region will expand by 2.6 percent in 2025 and 3.4 percent in 2026.
In its previous projection made in October, the IMF had forecasted MENA economies to grow by 4 percent in 2025 before accelerating to 4.2 percent the following year.
“We expect growth to pick up in 2025 and 2026, assuming oil output rebounds, conflict-related impacts stabilize, and progress is made on structural reform implementation,” said Azour.
He added: “However, the projections have been lowered compared with October 2024, reflecting weaker global growth, lower oil prices affecting oil exporters, still-lingering conflicts, and a more gradual resumption of oil production than we had expected after the extension of OPEC+ voluntary oil cuts.”
The IMF said the Kingdom’s economy is projected to grow by 3 percent in 2025 and 3.7 percent in 2026.
The projected economic growth of Saudi Arabia in 2025 is higher than that of its Arab neighbors, including Qatar, Kuwait, Oman, and Bahrain.
According to the analysis, Bahrain is expected to witness a gross domestic product growth of 2.8 percent in 2025, followed by Qatar at 2.4 percent, Oman at 2.3 percent, and Kuwait at 1.9 percent.
In December, a report by Mastercard Economics projected that the Kingdom’s economy is expected to witness an expansion of 3.7 percent in 2024, driven by growth in non-oil activities.
Affirming the growth of Saudi Arabia’s economy, in March credit rating agency S&P Global raised the Kingdom’s rating to “A+” from “A” with a stable outlook underpinned by the ongoing social and economic transformation in the country.
The IMF said that the economy of the UAE is expected to grow by 4 percent in 2025 and further accelerate to 5 percent in 2026, making it the highest-growing economy in the GCC region.
The organization added that inflation has been trending down for most economies and is projected to generally remain within established targets over the medium term.
In April, the World Bank projected that the real GDP of the MENA region is projected to rise 2.6 percent in 2025 and 3.7 percent in 2026.
In its analysis, the World Bank attributed this projected growth to the easing of OPEC+ production cuts, a rebound in agricultural output across oil-importing economies, and resilient private consumption.
Tackling challenges
In the report, the IMF outlined various challenges that could dampen growth prospects, including trade tensions, geopolitical conflicts, and climate shocks.
“Our analysis shows that persistent spikes in uncertainty triggered by global shocks are associated with large output losses in the MENA region: if the sharp rise in global uncertainty observed so far in 2025 continues, it could lead to output about 4.5 percent below its original trend for the average MENA economy after two years,” said Azour.
The IMF official added that geopolitical tensions could disrupt trade, tourism, and supply chains, and increase refugee flows.
He further said that the MENA region remains vulnerable to extreme weather events, including droughts and floods, which could negatively affect economic growth.
“Reduced official development assistance could have serious economic and humanitarian consequences, especially for the region’s low-income countries and fragile and conflict-affected states,” said Azour.
He added: “There are also some upside risks. The swift resolution of conflicts and accelerated implementation of structural reforms could improve regional growth prospects substantially.”
Azour also urged policymakers to adopt steps that could help shield their economies from worst-case scenarios and prioritize safeguarding macroeconomic and financial stability.
He cautioned countries facing high inflation rates to maintain a prudent monetary stance until inflation expectations are firmly anchored.
Azour urged countries in the region to maintain adequate levels of international reserves should be preserved; where exchange rates are flexible, which could help them absorb economic shocks.
“In the near term, an important way to create policy space is by strengthening institutional frameworks for fiscal and monetary policy,” said Azour.
He added: “Implementing credible medium-term fiscal frameworks and fiscal rules, along with reinforcing central bank independence, will help anchor expectations and enhance countries’ capacity to navigate uncertainty.”
The IMF official also asked countries in the region to continue their economic reforms, adding that ongoing challenges are not a reason to delay their transformation programs.
He added that these initiatives require improved governance, the development of a dynamic private sector, and the creation of strategic trade and investment corridors both with other regions and within the MENA region.
“Delay can be costly when the world prospects are uncertain, and change is fast. Instead, countries should accelerate the long-discussed structural reform agenda to reduce vulnerabilities to shocks and seize opportunities arising from the evolving global trade and financial landscape,” added Azour.
