Advancing Economic Growth through Strategic Diversification

Dangers are slanted to the disadvantage. In the occasion of a prolonged dispute, the present effect on the region will be compoundedthrough raised energy and food costs, declining trade, tourist and remittances, increased financial pressures, and displacement. "The existing crisis is a plain pointer of the work ahead for the area: not just to weather shocks, but to restore more durable economies with more powerful macroeconomic basics, innovate and enhance governance, buy infrastructure, and boost employment-creating sectors," stated.

With peace and the ideal action, nations can construct the institutions, capabilities and competitive sectors that produce chances for individuals." With this long-lasting vision in mind, the report takes a close look at the area's potential for industrial policy federal government actions to increase strategic organization activity as a motorist of financial development and task development.

ANSR July GCC PRs 50DR+

Governments in the area have embraced commercial policy at a high rate in the last decade, frequently through sovereign wealth funds and state-owned enterprises, but the outcomes have actually been blended. The report highlights the important need for strong institutions and careful targeting of policies. "As countries face the heavy toll of today dispute, it is essential to also not forget the work needed for long-lasting peace and success," stated.

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Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic forecast for the region prepared directly for the financing profession. The GCC economy deals with a significant contraction this year pending details of the US-Iran arrangement to end the war. We anticipate energy circulations, tourist and investor sentiment to slowly normalise as war disturbances decrease.

ANSR July GCC PRs 50DR+

The interim agreement in between the United States and Iran is a considerable action towards reaching a full-blown offer. A complete go back to normality in the Strait of Hormuz will likely require time, but the threat of a recession-inducing oil cost spike has declined. Worldwide GDP is expected to grow by 2.4% this year, 0.2 ppt less than we projected three months ago, and 3.1% in 2027.

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

Our 2026 outlook for the GCC is weaker than three months earlier, with GDP projection to agreement by 2.4% compared to a 0.2% decline forecasted previously. We anticipate Oman and Saudi Arabia to be the least negatively affected by the fallout from the dispute, with both economies continuing to expand this year.

The economic damage incurred in the last few months is significant. Saudi GDP data for Q1 revealed growth slowed to 3% y/y, with non-oil activities broadening by 2.9%, the weakest pace given 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 interruption struck late in the quarter.

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Aside from Oman, all GCC manufacturers as well as Iran and Iraq have actually suffered extensive oil and gas production losses considering that the start of the conflict. Might data reveal 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 avoid an even larger plunge in output.

ANSR July GCC PRs 50DR+

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

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

The May PMI surveys reported output growth reaching its strongest level in 3 months, driven largely by improved domestic need. However, they remain below long-run averages, with weak export orders and cost pressures from greater material and transportation costs are a common theme. In general, 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 remainder of the years.