How Economic Diversification Can Transform GCC Markets

Risks are tilted to the drawback. In the event of an extended dispute, the existing effects on the area will be compoundedthrough elevated energy and food rates, declining trade, tourism and remittances, increased financial pressures, and displacement. "The current 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 principles, innovate and enhance governance, buy infrastructure, and improve employment-creating sectors," stated.

With peace and the ideal action, nations can construct the organizations, abilities and competitive sectors that develop chances for individuals." With this long-term vision in mind, the report takes a close appearance at the region's potential for commercial policy federal government actions to increase tactical company activity as a driver of financial growth and job production.

ANSR July GCC PRs 50DR+

Federal governments in the area have actually adopted commercial policy at a high rate in the last decade, typically through sovereign wealth funds and state-owned business, but the outcomes have actually been blended. The report highlights the crucial need for strong organizations and mindful targeting of policies. "As countries face the heavy toll of today conflict, it is essential to also not lose sight of the work needed for lasting peace and prosperity," stated.

Essential Stock Capital Insights for GCC Investors

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic forecast for the area prepared directly for the financing occupation. The GCC economy faces a marked contraction this year pending details of the US-Iran contract to end the war. We anticipate energy flows, tourist and financier belief to gradually normalise as war disruptions go away.

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The interim contract between the US and Iran is a substantial step towards reaching a full-blown offer. A full go back to normality in the Strait of Hormuz will likely take some time, but the risk of a recession-inducing oil cost spike has decreased. International GDP is expected to grow by 2.4% this year, 0.2 ppt less than we projected 3 months ago, 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 decline in the very first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stick out as the hardest hit, owing to their failure to avoid the interruption to regional shipping, war-driven facilities damage and tourism losses.

Our 2026 outlook for the GCC is weaker than 3 months ago, with GDP forecast to agreement by 2.4% compared to a 0.2% decrease projected formerly. 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 economic damage incurred in the last couple of months is considerable. Saudi GDP data for Q1 revealed growth slowed to 3% y/y, with non-oil activities broadening by 2.9%, the weakest speed 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 disruption hit late in the quarter.

Future Regional Market Outlook

Aside from Oman, all GCC producers in addition to Iran and Iraq have suffered extensive oil and gas production losses because the start of the dispute. May information show 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 helped prevent an even larger plunge in output.

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We forecast GCC oil sector output to agreement by 14.5% this year, which will mark the steepest decline in several decades. We then anticipate a 23.5% rebound next year, driven mostly by normalisation from a seriously depressed base. Meanwhile, oil rates have actually been unpredictable, alleviating below $85 per barrel as the interim agreement was announced.

In the medium term, we expect oil prices to be a little lower than our pre-war baseline, as the UAE's departure from OPEC+ enables for a gradual boost in its output towards the 5mn barrel daily production target when trade normalises. Against this backdrop, 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 development reaching its strongest level in three months, driven largely by improved domestic demand. Nevertheless, they remain listed below long-run averages, with weak export orders and price pressures from greater product and transportation costs are a common style. In general, we expect a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% growth pre-war) and a steady recovery over the remainder of the years.