Advancing Industrial Growth through Global Diversification

Dangers are slanted to the drawback. In case of an extended conflict, the existing impacts on the area will be compoundedthrough raised energy and food costs, decreasing trade, tourism and remittances, increased fiscal pressures, and displacement. "The current crisis is a stark pointer of the work ahead for the region: not only to weather shocks, but to restore more resistant economies with stronger macroeconomic basics, innovate and enhance governance, purchase facilities, and boost employment-creating sectors," said.

With peace and the ideal action, countries can develop the institutions, abilities and competitive sectors that create opportunities for individuals." With this long-lasting vision in mind, the report takes a close take a look at the region's potential for industrial policy federal government actions to increase strategic service activity as a motorist of economic development and job creation.

ANSR July GCC PRs 50DR+

Federal governments in the region have adopted commercial policy at a high rate in the last years, typically through sovereign wealth funds and state-owned enterprises, however the outcomes have been mixed. The report highlights the vital requirement for strong institutions and cautious targeting of policies. "As countries face the heavy toll of the present conflict, it is very important to also not forget the work required for long-lasting peace and success," said.

Key Equity Capital Insights for GCC Investors

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial forecast for the region prepared directly for the financing profession. The GCC economy deals with a significant contraction this year pending information of the US-Iran agreement to end the war. We anticipate energy flows, tourism and financier belief to slowly normalise as war disruptions diminish.

ANSR July GCC PRs 50DR+

The interim arrangement in between the United States and Iran is a significant step towards reaching a full-blown deal. A complete go back to normality in the Strait of Hormuz will likely take some time, however the risk of a recession-inducing oil cost spike has actually declined. International GDP is anticipated 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 projected 3.6% growth before the war), higher than the decrease in the first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stick out as the hardest struck, owing to their failure 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 forecast to agreement by 2.4% compared to a 0.2% decline predicted formerly. We anticipate Oman and Saudi Arabia to be the least negatively impacted by the fallout from the conflict, with both economies continuing to broaden this year.

The economic damage incurred in the last few months is substantial. 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 disturbance hit late in the quarter.

Why Economic Diversification Can Shape GCC Markets

Aside from Oman, all GCC manufacturers as well as Iran and Iraq have suffered comprehensive oil and gas production losses given that the start of the dispute. May data reveal regional 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 actually helped prevent an even bigger plunge in output.

ANSR July GCC PRs 50DR+

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

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

The May PMI surveys reported output growth reaching its greatest level in 3 months, driven largely by improved domestic need. They remain listed below long-run averages, with weak export orders and cost pressures from higher product and transport costs are a common theme. In general, we expect a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% growth pre-war) and a progressive recovery over the remainder of the years.