Accelerating Economic Success via Strategic Diversification

Risks are slanted to the disadvantage. In the event of an extended dispute, the existing effect on the area will be compoundedthrough elevated energy and food prices, decreasing trade, tourism and remittances, increased fiscal pressures, and displacement. "The present crisis is a plain reminder of the work ahead for the area: not only to weather shocks, but to rebuild more resistant economies with stronger macroeconomic basics, innovate and improve governance, invest in facilities, and boost employment-creating sectors," said.

With peace and the ideal action, nations can construct the organizations, capabilities and competitive sectors that produce chances for individuals." With this long-lasting vision in mind, the report takes a close look at the region's potential for industrial policy government actions to increase tactical company activity as a chauffeur of financial growth and job creation.

ANSR July GCC PRs 50DR+

Federal governments in the region have actually adopted industrial policy at a high rate in the last decade, often through sovereign wealth funds and state-owned business, however the outcomes have actually been mixed. The report highlights the vital requirement for strong institutions and careful targeting of policies. "As nations face the heavy toll of today conflict, it is crucial to also not forget the work needed for lasting peace and prosperity," stated.

Upcoming GCC Financial Projections

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial projection for the region prepared straight for the financing occupation. The GCC economy faces a marked contraction this year pending details of the US-Iran agreement to end the war. We anticipate energy flows, tourist and financier sentiment to slowly normalise as war disruptions go away.

ANSR July GCC PRs 50DR+

The interim arrangement in between the US and Iran is a significant step towards reaching a full-blown deal. A full return to normality in the Strait of Hormuz will likely take some time, however the threat of a recession-inducing oil rate spike has actually decreased. Global GDP is anticipated to grow by 2.4% this year, 0.2 ppt less than we projected 3 months earlier, and 3.1% in 2027.

We forecast a 4.1% contraction in Middle East GDP this year (versus predicted 3.6% growth before the war), higher than the decrease in the first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand out as the hardest struck, owing to their failure to avoid the interruption to local shipping, war-driven infrastructure damage and tourist losses.

Our 2026 outlook for the GCC is weaker than three months earlier, with GDP forecast to contract by 2.4% compared to a 0.2% decline projected previously. We expect Oman and Saudi Arabia to be the least adversely impacted by the fallout from the dispute, with both economies continuing to expand this year.

The economic damage sustained in the last few months is significant. Saudi GDP information for Q1 revealed development slowed to 3% y/y, with non-oil activities expanding by 2.9%, the weakest rate considering that the Covid pandemic. On a seasonally changed basis, GDP contracted 1.2% q/q, driven by a 6.8% fall in oil activities as the Strait of Hormuz disruption struck late in the quarter.

Key Capital Diversification for the Future

Aside from Oman, all GCC producers in addition to Iran and Iraq have actually suffered extensive oil and gas production losses since the start of the dispute. Might data reveal local production nearly cut in half from pre-war levels, with the decline deepening relative to March and April. Rerouting efforts, including by Saudi Arabia through the East-West Pipeline and the UAE through the Habshan-Fujairah pipeline, have actually helped prevent an even larger plunge in output.

ANSR July GCC PRs 50DR+

We anticipate GCC oil sector output to contract by 14.5% this year, which will mark the steepest decline in a number of decades. We then anticipate a 23.5% rebound next year, driven mostly by normalisation from a severely depressed base. Oil rates have been volatile, reducing listed below $85 per barrel as the interim agreement was revealed.

In the medium term, we anticipate oil rates to be somewhat lower than our pre-war standard, as the UAE's departure from OPEC+ enables for a gradual increase in its output towards the 5mn barrel per day production target as soon as trade normalises. Against this backdrop, the UAE will speed up the building of a brand-new West-East pipeline that must double the capability of export through Fujairah.

The May PMI surveys reported output development reaching its strongest level in 3 months, driven mainly by improved domestic demand. However, they remain below long-run averages, with weak export orders and rate pressures from higher material and transport costs are a typical theme. In general, we expect a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% growth pre-war) and a progressive recovery over the remainder of the years.