Advancing Economic Growth via Strategic Diversification

Threats are slanted to the disadvantage. In case of an extended conflict, the present influence on the region will be compoundedthrough raised energy and food costs, declining trade, tourism and remittances, increased financial pressures, and displacement. "The existing crisis is a plain suggestion of the work ahead for the region: not only to weather shocks, however to reconstruct more durable economies with stronger macroeconomic principles, innovate and improve governance, buy infrastructure, and increase employment-creating sectors," stated.

With peace and the right action, countries can develop the institutions, capabilities and competitive sectors that develop opportunities for individuals." With this long-term vision in mind, the report takes a close take a look at the area's potential for industrial policy federal government actions to increase tactical business activity as a driver of economic growth and task creation.

ANSR July GCC PRs 50DR+

Federal governments in the area have embraced commercial policy at a high rate in the last years, typically through sovereign wealth funds and state-owned enterprises, however the results have been mixed. The report highlights the crucial need for strong organizations and cautious targeting of policies. "As nations face the heavy toll of the present conflict, it is important to likewise not lose sight of the work required for lasting peace and success," said.

Driving Economic Growth through Strategic Diversification

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic projection for the area prepared straight for the finance occupation. The GCC economy faces a significant contraction this year pending information of the US-Iran contract to end the war. We expect energy flows, tourism and investor belief to gradually normalise as war disruptions go away.

ANSR July GCC PRs 50DR+

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

We anticipate a 4.1% contraction in Middle East GDP this year (versus predicted 3.6% expansion before the war), greater than the decline in the first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stick out as the hardest hit, owing to their inability to avoid the disruption to local shipping, war-driven facilities damage and tourism losses.

Our 2026 outlook for the GCC is weaker than three months earlier, with GDP projection to contract by 2.4% compared to a 0.2% decrease projected previously. We expect Oman and Saudi Arabia to be the least negatively affected by the fallout from the conflict, with both economies continuing to broaden this year.

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

Driving Non-Oil Success through Strategic Diversification

Aside from Oman, all GCC producers as well as Iran and Iraq have actually suffered extensive oil and gas production losses since the start of the dispute. Might data show local production almost halved from pre-war levels, with the decrease deepening relative to March and April. Rerouting efforts, consisting of 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+

Nevertheless, we forecast GCC oil sector output to contract by 14.5% this year, which will mark the steepest decrease in numerous years. We then anticipate a 23.5% rebound next year, driven mainly by normalisation from a seriously depressed base. Oil costs have been unstable, alleviating listed below $85 per barrel as the interim agreement was announced.

In the medium term, we anticipate oil prices to be a little lower than our pre-war baseline, as the UAE's departure from OPEC+ enables a progressive increase in its output towards the 5mn barrel daily production target once trade normalises. Versus this backdrop, the UAE will accelerate the construction of a brand-new West-East pipeline that ought to double the capability of export through Fujairah.

The May PMI studies reported output development reaching its greatest level in three months, driven largely by improved domestic need. Nevertheless, they remain below long-run averages, with weak export orders and cost pressures from higher material and transportation costs are a common style. Overall, we expect a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% development pre-war) and a steady healing over the remainder of the years.