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GCC stays steady as IMF, World Bank flag slowdown risks despite strong buffers
Most GCC governments entered the crisis with low public debt, large fiscal surpluses from recent energy windfalls and access to sovereign wealth assets estimated at more than $3 trillion
- PUBLISHED: Tue 28 Apr 2026, 8:16 PM
Gulf Cooperation Council (GCC) economies are proving more resilient than expected in the face of the US-Israel war with Iran, supported by deep fiscal buffers, sovereign wealth strength and swift policy intervention — even as the Oxford Economics, the International Monetary Fund and the World Bank warn that tightening financial conditions and weaker trade flows are set to slow regional growth sharply this year.
Oxford Economics said the conflict, which disrupted shipping through the Strait of Hormuz and unsettled regional capital markets after erupting on February 28, has already forced a major downgrade to the bloc’s outlook. It now expects GCC real GDP to contract by 0.2 per cent in 2026, compared with an earlier projection of 4.4 per cent growth, reflecting reduced oil output, weaker exports and softer tourism activity.
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That assessment broadly aligns with fresh warnings from the World Bank, which said growth across GCC economies is now expected to slow to about 1.3 per cent in 2026 from 4.4 per cent in 2025 after conflict-driven disruptions to energy flows and trade corridors triggered a 3.1-percentage-point downgrade since January.
The IMF has delivered a similarly cautious outlook, cutting regional growth projections sharply in response to war-related uncertainty while still expecting a rebound to about 4.8 per cent by 2027 if energy production and trade routes normalise. Despite the deteriorating near-term outlook, economists say the Gulf’s strong sovereign balance sheets and external buffers are helping contain financial stress. Most GCC governments entered the crisis with low public debt, large fiscal surpluses from recent energy windfalls and access to sovereign wealth assets estimated at more than $3 trillion, giving policymakers significant room to stabilise markets and support credit conditions.
“Although most GCC sovereigns carry relatively little debt, Bahrain stands out,” said Azad Zangana, head of GCC macroeconomic analysis at Oxford Economics. “Its debt is above 130 per cent of gross domestic product. Bond markets have sold off but have started to rally since the ceasefire announcement. Bahrain’s spreads have now fallen back below the pre-war level, thanks in part to currency swap lines offered by the UAE.”
The report identified Bahrain as the most vulnerable economy in the bloc because of its elevated debt levels and exposure to tightening financing conditions. Across the region more broadly, sovereign bond spreads widened sharply in the early phase of the conflict but have since partially retraced losses as ceasefire signals improved investor sentiment.
Corporate borrowing conditions remain more fragile. High-yield sukuk spreads continue to trade above pre-conflict levels, indicating higher financing costs that could weigh on investment decisions in sectors such as construction, logistics and real estate.
Equity markets also reflected the shift in risk appetite, with foreign investors reducing exposure to regional assets despite strong reserve positions across most GCC states. According to market analysts, the divergence has been particularly visible within the UAE, where Abu Dhabi’s hydrocarbon-backed fiscal strength provided relative stability while Dubai’s externally linked sectors faced greater short-term sentiment pressure.
Central banks across the region responded quickly to contain liquidity stress. The Central Bank of the UAE introduced a resilience package allowing banks to access up to 30 per cent of capital buffers while easing reserve requirements and expanding access to dirham and dollar liquidity to sustain lending to the real economy. Dubai separately approved a Dh1 billion economic support programme aimed at strengthening business continuity and supporting companies and households during the conflict period.
Even as financial conditions tightened, structural diversification continued to cushion activity across the Gulf. The World Bank noted that non-oil sector expansion remains a key stabilising factor, particularly in economies such as the UAE and Saudi Arabia, where logistics, tourism, finance and manufacturing are playing a growing role in sustaining growth momentum.
Property markets — often an early indicator of investor confidence — also showed signs of resilience. According to CBRE Group, office markets in Dubai and Abu Dhabi remained tight in the first quarter of 2026 due to limited new supply, with average office rents in Dubai rising 14 per cent year-on-year and prime rents increasing 16 per cent while occupancy held near 95 per cent.
At the global level, the IMF has warned that the conflict is already pushing up inflation expectations and tightening financial conditions worldwide, with global growth projected to ease to about 3.1 per cent in 2026 under its baseline scenario.
For GCC economies, however, the combination of strong fiscal buffers, proactive central bank support and accelerating non-oil diversification continues to provide a critical cushion against one of the most serious geopolitical shocks the region has faced in recent years — leaving the bloc well positioned to recover once energy flows stabilise and investor confidence returns.
