Amid the US Federal Reserve’s continued decision to hold interest rates between 4.25% and 4.5%, central banks across the Gulf Cooperation Council (GCC) have followed suit, maintaining their monetary policies closely aligned with the dollar to which their currencies are pegged.
While this approach offers monetary stability, it presents a complex balancing act for GCC economies: stimulating non-oil growth while keeping inflation in check. The region continues to face the ripple effects of global economic uncertainty and supply chain disruptions, prompting governments to reassess policy priorities.
Hamza Dweik, Head of Trading for the Middle East and North Africa at Saxo Bank, told Asharq Al-Awsat that the GCC’s steady monetary stance has reinforced investor confidence in local financial markets, especially amid signs of gradual global economic recovery.
However, he warned that persistently high interest rates could weigh on non-oil sectors, such as real estate and consumer services.
Dweik noted that the Gulf states are well-positioned thanks to strong fiscal surpluses, robust sovereign wealth funds, and relatively stable oil prices, averaging around $73 per barrel. These factors enable governments to maintain capital spending and finance ambitious infrastructure and diversification projects.
To ensure sustained economic expansion without fueling inflation, the expert suggested targeted incentives for sectors like real estate and small businesses, while preserving social spending to protect lower-income groups affected by rising living costs.
Disciplined Policy Frameworks
The stability in interest rates offers GCC central banks room to monitor liquidity conditions, manage credit growth, and expand long-term financing tools, thus reducing dependency on short-term borrowing and contributing to financial stability.
Economic diversification remains critical. GCC countries are pushing forward with strategies in tourism, renewable energy, and digital technologies, in line with Saudi Arabia’s Vision 2030 and the UAE’s Net Zero by 2050 Strategy.
Dweik also emphasized the importance of bolstering food and energy supply chains, as well as improving price-monitoring mechanisms, to mitigate imported inflation pressures exacerbated by ongoing global supply chain challenges.
Cost of Borrowing and Clear Outlook
Vijay Valecha, Chief Investment Officer at Century Financial, highlighted that US monetary policy directly affects GCC economies due to their dollar pegs. He added that rate stability provides borrowers in the region with greater clarity over future financing costs.
Valecha projected solid non-oil GDP growth across the GCC in 2025, with regional economies expected to expand between 3.2% and 3.5%. In 2024, the non-oil sector grew by 3.7%, signaling a positive trajectory.
Saudi Arabia and the UAE are leading this growth. Saudi Arabia’s non-oil GDP is forecast to grow by 3.6% in 2025, while the UAE could achieve 5.5% growth, driven by continued investment in infrastructure, tourism, technology, and logistics.
With global commodity prices stabilizing and government spending remaining disciplined, Valecha sees the macroeconomic environment in the GCC as favorable for growth. He emphasized the need for continued diversification into manufacturing and clean energy to safeguard against external shocks.
Dweik concluded by calling for deeper economic integration among GCC countries, especially in areas like intra-GCC trade, infrastructure development, and digital transformation. Such efforts, he said, would help build a more competitive and resilient regional economy.
