GCC consumer spending poised to outperform global peers

29/12/2025 03:54 AST

As Gulf Cooperation Council governments intensify efforts to diversify their economies away from oil and gas, household spending in the region is set to outpace that of advanced economies, creating a landscape for consumer-facing investments.

This trend forms a critical pillar of the GCC's emergence as the next major destination for growth, complementing unprecedented infrastructure spending and burgeoning new sectors.

According to Oxford Economics, real household consumption across the GCC is projected to increase by 3.4 percent per annum over the next five years, nearly double the 1.7 percent growth forecast for advanced economies.

Azad Zangana, head of GCC Economic Analysis at Oxford Economics, told Arab News that "the strong and rising contribution from households is likely to attract more inward foreign direct investment that will seek to meet the growing demand from consumers."

Among the largest economies, Saudi Arabia's real household consumption grew by 2.7 percent in 2024 and is forecast to rise to 3.8 percent by 2026, while the UAE, Kuwait, and Qatar are expected to average annual growth of more than 3.5 percent in the coming years.

Economist Talat Hafiz told Arab News that this growth in household spending is expected to create expanded business opportunities for both local and international companies across a wide range of consumer-focused sectors, supporting disposable incomes and strengthening purchasing power.

This strong consumer outlook is underpinned by several favorable cyclical factors. Notably, inflation in the GCC has remained and is expected to stay relatively low and stable.

While US and advanced economy inflation peaked at 8 percent and 7 percent, respectively, in 2022, rates in the UAE and Saudi Arabia reached only 4.8 percent and 3.1 percent, respectively.

Oxford Economics forecasts that inflation will pick up slightly in 2026 in some states before moderating again, helping to safeguard household purchasing power and provide certainty for business planning.

Employment boosts consumption
Unemployment rates in the GCC have generally been falling post-pandemic and are projected to continue declining, in contrast to expectations of rising unemployment in the US.

Crucially, employment growth in the GCC is forecast to be almost ten times higher than in non-GCC advanced economies between now and 2030, providing a fundamental driver for aggregate consumption.

Zangana emphasized that the GCC's youthful population is a significantly underappreciated asset for investors.

"Having older and aging populations should be seen as a significant risk to any long-term investment," he said, noting that the GCC's demographic profile avoids issues such as higher tax burdens and constrained government spending common in aging societies.

A significant structural shift is also underway through the expansion of credit. GCC governments are relaxing lending rules, partly by extending access to non-nationals, fueling a sustained uptrend in credit growth.

Personal bank loans in the UAE surged 17.8 percent year on year in the three months to April 2025, while Saudi Arabia has seen a recovery in personal lending activity.

This credit expansion is closely tied to a booming housing market, particularly in the UAE, where real estate-related loans grew 3.5 percent in 2024, driven by a 42.5 percent annual increase in transactions in Dubai.

The property sector's vibrancy is a key component of the regional growth story. Higher housing transactions directly stimulate sales of furniture, white goods, and other durable goods.

In Saudi Arabia, plans to open the property market in its two largest cities, as well as the holy cities of Makkah and Madinah, to non-GCC citizens have the potential to significantly accelerate property market growth in the coming years.

Hafiz stated that Saudi Arabia's economic diversification under Vision 2030 is expanding the real estate sector by attracting a growing influx of international talent, investors, and skilled professionals, which has strengthened non-oil economic activities and increased demand for residential housing and rental properties in major cities.

Zangana pointed out that the residential property market is already running hot, with significant shortages of supply causing prices and rents to rise, necessitating a rapid expansion of the construction sector.

Ziad El Chaar, CEO of DarGlobal, added that regulatory modernization is fundamentally changing market transparency and accessibility. "With the upcoming foreign ownership law opening the door for global buyers at a scale never seen before, the region is preparing to welcome more than 120 nationalities into Saudi Arabia's real estate market," he told Arab News, noting that these are the reforms global capital looks for.

He said the best balance of upside and manageable risk for investors lies where governance and infrastructure are strongest, such as in core urban regeneration zones in Riyadh or secondary cities connected by new infrastructure. With the foreign ownership law, these opportunities will become accessible to a significantly expanded global investor base.

Hafiz added: "Foreign investors and new residents can expect several practical changes as Saudi Arabia opens its property market in key cities to non-GCC citizens." He emphasized that regulations are becoming more transparent and investor-friendly.

Monetary tailwinds
As GCC central banks largely shadow the US Federal Reserve, the anticipated resumption of interest rate cuts - with 125 basis points of easing expected by end-2026 - will further stimulate domestic demand and spending across the region.

According to Zangana, lower interest rates will certainly help reduce the cost of loans and mortgages and enable additional purchases, strengthening demand. However, he noted they are only part of a wider story of strong employment growth and robust economic activity that work together in boosting the consumer sector.

Despite this positive outlook, a key risk remains the GCC's reliance on hydrocarbons.

Oxford Economics modeling estimated that a 10 percent fall in oil and gas prices would reduce real GCC consumption by 0.74 percent by the fifth year, shaving about 0.15 percentage points from annual growth.

However, the analysis concluded that unless a price drop is deep and sustained, it is unlikely to alter the overall positive consumer outlook.

Zangana said the strength of consumer growth demonstrates that GCC economies can become less dependent on hydrocarbons. "With sufficient investment and commitment from governments, other sectors will flourish over time," he said, while cautioning that investments must be effective, targeted, and consistent.

This resilient consumer outlook, combined with the region's vast infrastructure spending - comparable to that of G20 economies - reinforces the GCC's position as a high-growth destination.

El Chaar observed that this scale of investment is building connectivity, speed, and confidence. "When a city opens a new international airport, a new metro system, and new tourism assets in the same window, you suddenly unlock land value, create new demand corridors, and attract global brands," he said.

He cited the transformation of Diriyah as a clear example, where infrastructure development is directly creating a new ultra-premium residential and hospitality submarket, emerging as one of the most valuable urban districts in the Middle East.

Furthermore, El Chaar highlighted that PropTech has become a core catalyst, accelerating transparency and creating new investment models. "In markets like Saudi Arabia, where ambition and pace are unmatched, PropTech is no longer supportive; it is fundamental to how capital is deployed," he said.

The convergence of strong household spending, a dynamic property market, and strategic public investment is creating multifaceted growth opportunities for businesses engaging with the region's evolving economic landscape.

Zangana concluded that the strong and rising contribution from households is likely to attract more inward foreign direct investment to meet growing consumer demand. "Moreover, as these investment projects progress, they create jobs which further stimulate demand, amplifying the impact of those investments," he said.

Arab News