Gulf region GDP set to contract about 5% as Iran conflict drags on

Capital Economics' September 22 outlook predicts Gulf economies will contract by roughly 5% this year, mirroring the pandemic downturn. The slowdown stems from prolonged Iran-related hostilities that keep oil exports below pre-war volumes until at least early 2027, while non-oil activity is hampered by limited fiscal stimulus, US-linked interest-rate hikes and a struggling tourism sector. The firm argues that most forecasts fail to capture the full economic hit.

Specific country impacts include Saudi Arabia’s oil output reversal after the East-West pipeline shutdown, the UAE’s modest GDP dip, and double-digit contractions in Qatar, Kuwait and Bahrain. Oman is the sole Gulf state projected to grow, while Egypt and Morocco show modest resilience, and Tunisia faces a looming crisis. The note also highlights rising debt ratios and limited stimulus capacity across the region.