Why Economic Diversification Can Shape GCC Markets

Risks are slanted to the disadvantage. In case of an extended dispute, the existing effect on the region will be compoundedthrough elevated energy and food costs, declining trade, tourist and remittances, increased fiscal pressures, and displacement. "The existing crisis is a plain pointer of the work ahead for the area: not just to weather shocks, however to reconstruct more durable economies with more powerful macroeconomic principles, innovate and enhance governance, purchase facilities, and enhance employment-creating sectors," stated.

With peace and the ideal action, nations can build the organizations, capabilities and competitive sectors that produce opportunities for individuals." With this long-term vision in mind, the report takes a close take a look at the area's potential for industrial policy government actions to increase strategic company activity as a motorist of financial development and task creation.

ANSR July GCC PRs 50DR+

Federal governments in the region have adopted commercial policy at a high rate in the last decade, often through sovereign wealth funds and state-owned enterprises, however the results have actually been blended. The report highlights the crucial requirement for strong institutions and cautious targeting of policies. "As nations deal with the heavy toll of the present dispute, it is essential to likewise not lose sight of the work required for long-lasting peace and success," stated.

Driving Economic Growth through Global Diversification

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic forecast for the area prepared straight for the financing profession. The GCC economy faces a significant contraction this year pending information of the US-Iran arrangement to end the war. We anticipate energy circulations, tourist and financier sentiment to gradually normalise as war disturbances go away.

ANSR July GCC PRs 50DR+

The interim arrangement between the United States and Iran is a significant 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 actually decreased. Global GDP is expected to grow by 2.4% this year, 0.2 ppt less than we forecasted three months ago, and 3.1% in 2027.

We forecast a 4.1% contraction in Middle East GDP this year (versus projected 3.6% expansion 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 hit, owing to their inability to avoid the disturbance to regional shipping, war-driven facilities damage and tourist losses.

Our 2026 outlook for the GCC is weaker than 3 months ago, with GDP projection to contract by 2.4% compared to a 0.2% decrease projected formerly. We expect Oman and Saudi Arabia to be the least adversely impacted by the fallout from the dispute, with both economies continuing to expand this year.

The economic damage incurred in the last few months is considerable. Saudi GDP information for Q1 revealed growth slowed to 3% y/y, with non-oil activities broadening by 2.9%, the weakest rate given that 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 disruption hit late in the quarter.

How Industrial Shifts Can Shape GCC Markets

Aside from Oman, all GCC producers in addition to Iran and Iraq have actually suffered substantial oil and gas production losses considering that the start of the dispute. Might data show regional production almost halved 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 assisted avoid an even larger plunge in output.

ANSR July GCC PRs 50DR+

However, we forecast GCC oil sector output to contract by 14.5% this year, which will mark the steepest decline in numerous decades. We then anticipate a 23.5% rebound next year, driven mainly by normalisation from a badly depressed base. On the other hand, oil costs have been unpredictable, relieving 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 standard, as the UAE's departure from OPEC+ enables a progressive boost in its output towards the 5mn barrel each day production target as soon as trade normalises. Versus this backdrop, the UAE will speed up the construction of a brand-new West-East pipeline that should 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 demand. Nevertheless, they remain listed below long-run averages, with weak export orders and price pressures from higher material 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 recovery over the remainder of the years.