Why Industrial Diversification Will Transform GCC Markets

Risks are slanted to the downside. In the event of an extended conflict, the existing influence on the area will be compoundedthrough elevated energy and food prices, declining trade, tourism and remittances, increased fiscal pressures, and displacement. "The present crisis is a stark tip of the work ahead for the area: not only to weather shocks, however to restore more durable economies with stronger macroeconomic basics, innovate and improve governance, purchase facilities, and improve employment-creating sectors," said.

With peace and the ideal action, countries can develop the organizations, capabilities and competitive sectors that develop opportunities for individuals." With this long-lasting vision in mind, the report takes a close look at the region's capacity for industrial policy government actions to increase tactical business activity as a motorist of financial growth and job creation.

ANSR July GCC PRs 50DR+

Federal governments in the area have actually adopted industrial policy at a high rate in the last decade, often through sovereign wealth funds and state-owned enterprises, but the results have actually been blended. The report highlights the crucial need for strong institutions and mindful targeting of policies. "As countries deal with the heavy toll of the present conflict, it is necessary to also not forget the work required for lasting peace and prosperity," said.

International Capital Opportunities across the Middle East

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial forecast for the region prepared directly for the finance occupation. The GCC economy deals with a significant contraction this year pending details of the US-Iran agreement to end the war. We expect energy flows, tourist and financier belief to gradually normalise as war interruptions diminish.

ANSR July GCC PRs 50DR+

The interim arrangement between the United States and Iran is a significant action towards reaching a full-blown offer. A complete go back to normality in the Strait of Hormuz will likely require time, but the danger of a recession-inducing oil rate spike has decreased. Global GDP is expected to grow by 2.4% this year, 0.2 ppt less than we predicted 3 months back, 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), greater than the decrease in the very first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand out as the hardest struck, owing to their failure to avoid the disturbance to local shipping, war-driven infrastructure damage and tourism 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 forecasted formerly. We expect Oman and Saudi Arabia to be the least adversely impacted by the fallout from the conflict, with both economies continuing to broaden this year.

The economic damage incurred 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 pace because 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.

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Aside from Oman, all GCC manufacturers as well as Iran and Iraq have suffered extensive oil and gas production losses given that the start of the conflict. May data show local production almost 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 actually assisted avoid 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 several years. We then expect a 23.5% rebound next year, driven mainly by normalisation from a severely depressed base. On the other hand, oil prices have actually been unstable, alleviating listed below $85 per barrel as the interim contract was announced.

In the medium term, we expect oil prices to be slightly lower than our pre-war baseline, as the UAE's departure from OPEC+ enables a progressive boost in its output towards the 5mn barrel daily production target as soon as trade normalises. Versus this background, the UAE will accelerate the construction of a brand-new West-East pipeline that need to double the capacity of export through Fujairah.

The May PMI studies reported output development reaching its greatest level in three months, driven mostly by improved domestic need. They remain below long-run averages, with weak export orders and cost pressures from greater product and transportation expenses are a common style. In general, we expect a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% development pre-war) and a gradual recovery over the remainder of the years.