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Non-oil growth in Gulf region expected to stay strong in 2025

The Institute of International Finance reported that the economic prospects for the Gulf countries remain positive in 2025. The overall economic growth of the region this year is expected to support the gradual easing of OPEC+ oil production cuts.

The Institute also anticipates that non-oil growth will remain robust, fueled by the implementation of large infrastructure projects and ongoing efforts to diversify the region’s economies.

Importantly, the Institute, in a recent report, projected that the nominal GDP of the Gulf countries will reach $2.19 trillion in 2025, up from $2.16 trillion in 2024. The report also forecasted a recovery in the region’s GDP growth to 3.4% this year, compared to just 1.1% in 2024.

Notably, the growth of the Gulf’s non-oil sector, which is considered a more accurate measure of overall economic activity, is expected to remain strong at 4% in 2025. This growth is driven by robust private consumption and increased public investment across the region.

The Institute projected that the current account surpluses of the Gulf countries will narrow further in 2025, primarily due to lower oil prices and strong imports tied to investment.

Moreover, the Institute also anticipated a slight increase in investment, which is expected to rise to 28.6% of GDP this year, compared to 28.6% in the previous year. Despite this, the report highlighted that the financial situation in the region’s countries is recovering at a rapid pace, even as break-even oil prices in Gulf budgets are expected to decline in 2025.

Positive Expectations

The Institute of International Finance confirmed that the positive economic outlook for the Gulf countries is not significantly threatened by major risks in the short term. It explained that low oil prices could provide Saudi Arabia with an opportunity to reassess its local investment strategy.

Meanwhile, the UAE, with its highly diversified economy, is expected to continue to attract strong foreign direct investment and will remain relatively insulated from the impact of declining oil prices.

The Institute praised the economic growth prospects of the Gulf countries, highlighting the region’s progress in achieving economic diversification. It also noted the effects of slower monetary easing in advanced economies, the strength of the dollar, and geopolitical developments in the region.

Pressure on Oil Prices

The report noted that the decline in Chinese demand for oil, coupled with strong production from non-OPEC+ countries, could lead to lower oil prices and potentially limit the easing of production cuts by the organization. It explained that these factors may present negative risks to regional economic growth in 2025.

The Institute pointed out that average inflation in the Gulf countries is expected to decline to 1.6% in 2025, down from a peak of 3.6% in early 2023. The decline in regional inflation last year was supported by several factors, including the exchange rates of Gulf currencies linked to the dollar, price caps on some food and fuel items, a drop in global food prices, and the flexibility of the labor market, where foreign workers make up more than 60% of the workforce in the Gulf.

Source: Al Qabas



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