Positioning Regional Portfolios for 2026 Trends

Threats are tilted to the downside. In the event of a prolonged conflict, the existing effect on the area will be compoundedthrough elevated energy and food rates, decreasing trade, tourist and remittances, increased financial pressures, and displacement. "The existing crisis is a plain suggestion of the work ahead for the region: not just to weather shocks, but to reconstruct more resistant economies with stronger macroeconomic principles, innovate and improve governance, buy facilities, and enhance employment-creating sectors," stated.

With peace and the right action, countries can build the organizations, capabilities and competitive sectors that produce chances for individuals." With this long-term vision in mind, the report takes a close appearance at the area's capacity for commercial policy federal government actions to increase tactical company activity as a driver of financial development and job creation.

ANSR July GCC PRs 50DR+

Federal governments in the region have adopted industrial policy at a high rate in the last decade, frequently through sovereign wealth funds and state-owned business, but the outcomes have actually been mixed. The report highlights the crucial need for strong institutions and cautious targeting of policies. "As nations deal with the heavy toll of the present conflict, it is necessary to likewise not forget the work required for lasting peace and success," said.

Accelerating Economic Growth through Strategic Diversification

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial projection for the region prepared straight for the financing profession. The GCC economy faces a significant contraction this year pending information of the US-Iran agreement to end the war. We expect energy circulations, tourist and investor sentiment to gradually normalise as war interruptions diminish.

ANSR July GCC PRs 50DR+

The interim contract between the United States and Iran is a substantial action towards reaching a full-blown deal. 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 declined. Global GDP is expected to grow by 2.4% this year, 0.2 ppt less than we projected 3 months back, 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 decrease in the first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand apart as the hardest hit, owing to their failure to prevent the disturbance to local shipping, war-driven infrastructure damage and tourist losses.

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

The financial damage sustained in the last couple of months is significant. Saudi GDP information for Q1 showed development slowed to 3% y/y, with non-oil activities expanding by 2.9%, the weakest rate because 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 interruption struck late in the quarter.

Optimizing Wealth Diversification in a Global Economy

Aside from Oman, all GCC manufacturers as well as Iran and Iraq have actually suffered extensive oil and gas production losses since the start of the conflict. Might information reveal local production nearly cut in half from pre-war levels, with the decrease 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 assisted avoid an even bigger plunge in output.

ANSR July GCC PRs 50DR+

However, we anticipate GCC oil sector output to contract by 14.5% this year, which will mark the steepest decrease in a number of years. We then expect a 23.5% rebound next year, driven mainly by normalisation from a seriously depressed base. On the other hand, oil costs have been volatile, reducing listed below $85 per barrel as the interim agreement was announced.

In the medium term, we anticipate oil costs to be slightly lower than our pre-war baseline, as the UAE's departure from OPEC+ allows for a progressive boost in its output towards the 5mn barrel per day production target once trade normalises. Versus this backdrop, the UAE will speed up the building and construction of a brand-new West-East pipeline that ought to double the capacity of export through Fujairah.

The May PMI surveys reported output development reaching its strongest level in 3 months, driven largely by improved domestic demand. They stay listed below long-run averages, with weak export orders and cost pressures from higher material and transportation costs are a typical style. In general, we anticipate a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% development pre-war) and a progressive recovery over the rest of the years.