Advancing Economic Success via Strategic Diversification

Threats are tilted to the downside. In the occasion of an extended dispute, the current effect on the region will be compoundedthrough elevated energy and food prices, decreasing trade, tourist and remittances, increased fiscal pressures, and displacement. "The current crisis is a plain reminder of the work ahead for the region: not only to weather shocks, but to reconstruct more durable economies with stronger macroeconomic fundamentals, innovate and improve governance, purchase infrastructure, and boost employment-creating sectors," said.

With peace and the best action, countries can construct the institutions, abilities and competitive sectors that produce chances for people." With this long-lasting vision in mind, the report takes a close appearance at the area's capacity for industrial policy government actions to increase tactical business activity as a motorist of financial growth and task development.

ANSR July GCC PRs 50DR+

Governments in the area have actually adopted industrial policy at a high rate in the last years, often through sovereign wealth funds and state-owned business, but the outcomes have actually been blended. The report highlights the crucial requirement for strong organizations and cautious targeting of policies. "As nations deal with the heavy toll of the present conflict, it is essential to likewise not lose sight of the work needed for long-lasting peace and prosperity," stated.

Securing Regional Portfolios against 2026 Shifts

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic projection for the region prepared directly for the financing occupation. The GCC economy faces a significant contraction this year pending information of the US-Iran contract to end the war. We anticipate energy circulations, tourism and financier belief to gradually normalise as war disturbances decrease.

ANSR July GCC PRs 50DR+

The interim contract between the US and Iran is a substantial action towards reaching a full-blown offer. A full go back to normality in the Strait of Hormuz will likely take some time, however the threat of a recession-inducing oil price spike has decreased. International GDP is expected to grow by 2.4% this year, 0.2 ppt less than we forecasted 3 months earlier, and 3.1% in 2027.

We anticipate a 4.1% contraction in Middle East GDP this year (versus projected 3.6% growth 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 struck, owing to their failure to prevent the interruption to local shipping, war-driven facilities damage and tourism losses.

Our 2026 outlook for the GCC is weaker than 3 months back, with GDP forecast to agreement by 2.4% compared to a 0.2% decline predicted previously. We expect Oman and Saudi Arabia to be the least negatively impacted by the fallout from the dispute, with both economies continuing to expand this year.

The financial damage incurred in the last couple of months is significant. Saudi GDP data for Q1 showed growth slowed to 3% y/y, with non-oil activities expanding by 2.9%, the weakest speed since 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 disturbance hit late in the quarter.

Upcoming Middle Eastern Economic Outlook

Aside from Oman, all GCC producers along with Iran and Iraq have actually suffered substantial oil and gas production losses given that the start of the conflict. May information reveal regional production nearly cut in half 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 assisted prevent an even bigger plunge in output.

ANSR July GCC PRs 50DR+

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

In the medium term, we anticipate oil costs to be somewhat lower than our pre-war standard, as the UAE's departure from OPEC+ permits for a gradual increase in its output towards the 5mn barrel per day production target when trade normalises. Versus this backdrop, the UAE will accelerate the construction of a brand-new West-East pipeline that ought to double the capacity of export through Fujairah.

The May PMI studies reported output growth reaching its greatest level in 3 months, driven largely by improved domestic demand. They remain below long-run averages, with weak export orders and price pressures from higher product and transportation expenses are a common theme. Overall, we anticipate a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% growth pre-war) and a progressive healing over the rest of the decade.