MAYS IBRAHIM (ABU DHABI)

The UAE and Saudi Arabia are set to drive the Gulf region’s economic expansion in 2026, powered by robust non-oil activity and continued diversification, according to the ICAEW Economic Update Middle East Q4 2025.

The report projects Middle East GDP to grow 3.7% next year, up from an estimated 3% in 2025, with the GCC forecast to expand by 4.4%.

The upgraded outlook reflects stronger-than-expected global economic prospects, particularly in the US and China.

GCC consumers will remain among the best performers globally, supported by low unemployment, moderate inflation, credit growth and easing interest rates, according to the report.

Its findings predict the GCC’s economic performance will increasingly hinge on non-oil sectors, with activity expected to strengthen slightly to 4.1% in 2026. 
October Purchasing Managers’ Index (PMI) data showed sustained expansion of non-oil activity across Gulf economies.

The UAE’s GDP growth is expected to pick up to 5.6% in 2026, from an estimated 4.9% this year, driven by strong non-oil growth in key areas such as tourism, trade and financial services.

PMI levels in the UAE hovered around 54 in recent months, signaling sustained demand. Despite some moderation in H1, non-oil GDP is projected to expand 4.7% this year and cool slightly to 4.3% in 2026.

The report attributes this positive outlook to sustained trade activity, robust consumption, rapid population growth and continued policy-driven diversification.

Saudi Arabia’s October PMI index surpassed 60, marking its second strongest private sector reading in more than a decade.

The report expects Saudi non-oil GDP growth to accelerate to 5% in 2026, up from 4.6% this year, backed by government diversification efforts.

Across the region, travel and tourism continue to expand despite geopolitical concerns. Project pipelines, airline capacity increases and new partnerships are expected to boost arrivals, with further momentum to come from the GCC’s planned unified visa, confirmed for launch in 2026.

Technology is emerging as a second major pillar of diversification, according to ICAEW. Governments are increasing investment in artificial intelligence and digital infrastructure, particularly in the UAE and Saudi Arabia, where rapid deployment is seen as a means of securing early global competitiveness.

Both countries are expected to focus on innovation, technological standards, and knowledge cooperation in upcoming trade negotiations with the United States, the report said.

The UAE continues to expand its long-term revenue base through investment, international partnerships and tax reforms.

The 2026 federal budget reflects a 29% increase in expected revenue and spending as the country advances its “We the UAE 2031” development plan, which aims to double GDP and strengthen the country’s global standing in technology, human capital and diplomacy.

The new Domestic Minimum Top-up Tax has been recognised by the OECD as compliant with transitional global standards, helping safeguard the UAE’s tax revenues while providing clarity to investors.

The report also pointed out that OPEC+’s decision to pause oil output increases in the first half of 2026 has trimmed the region’s growth projections slightly.

Oil production among GCC members is expected to remain flat through mid-2026 before a full unwinding of supply curbs later in the year. This means the region’s oil sector is likely to expand 5.1% next year, matching the pace of 2025.

In the UAE, output is projected to rise gradually after mid-2026, potentially reaching 4 million barrels per day by 2027, supported by ADNOC’s upstream investments and long-term supply agreements, including a 15-year LNG deal with Indian Oil Corporation.