Advancing Industrial Growth through Strategic Diversification

Risks are tilted to the disadvantage. In the event of an extended dispute, the present effects on the region will be compoundedthrough elevated energy and food costs, declining trade, tourism and remittances, increased financial pressures, and displacement. "The existing crisis is a stark pointer of the work ahead for the area: not only to weather shocks, but to reconstruct more durable economies with stronger macroeconomic basics, innovate and improve governance, invest in infrastructure, and increase employment-creating sectors," stated.

With peace and the right action, nations can construct the institutions, abilities and competitive sectors that create opportunities for individuals." With this long-term vision in mind, the report takes a close appearance at the area's potential for commercial policy federal government actions to increase tactical business activity as a driver of financial growth and job development.

ANSR July GCC PRs 50DR+

Federal governments in the region have actually embraced industrial policy at a high rate in the last years, frequently through sovereign wealth funds and state-owned enterprises, however the outcomes have been blended. The report highlights the critical requirement for strong institutions and cautious targeting of policies. "As nations deal with the heavy toll of today conflict, it is necessary to likewise not lose sight of the work required for long-lasting peace and success," stated.

Future Investment Climate of the GCC

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic projection for the area prepared straight for the finance occupation. The GCC economy deals with a marked contraction this year pending information of the US-Iran contract to end the war. We expect energy circulations, tourist and financier belief to slowly normalise as war disruptions decrease.

ANSR July GCC PRs 50DR+

The interim arrangement in 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 time, but the risk of a recession-inducing oil rate spike has decreased. Worldwide GDP is anticipated to grow by 2.4% this year, 0.2 ppt less than we projected three months earlier, 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), greater than the decrease in the first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand apart as the hardest struck, owing to their inability to prevent the disruption to local shipping, war-driven infrastructure damage and tourism losses.

Our 2026 outlook for the GCC is weaker than 3 months earlier, with GDP projection to agreement by 2.4% compared to a 0.2% decline forecasted formerly. We anticipate Oman and Saudi Arabia to be the least adversely impacted by the fallout from the conflict, with both economies continuing to expand this year.

The economic damage sustained in the last couple of months is significant. Saudi GDP data for Q1 showed development slowed to 3% y/y, with non-oil activities expanding by 2.9%, the weakest pace considering 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 struck late in the quarter.

The Future Investment Landscape of Arabia

Aside from Oman, all GCC manufacturers along with Iran and Iraq have actually suffered extensive oil and gas production losses because the start of the conflict. May data show regional production almost 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 assisted avoid an even bigger 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 numerous decades. We then expect a 23.5% rebound next year, driven mostly by normalisation from a seriously depressed base. Oil prices have been unstable, alleviating below $85 per barrel as the interim arrangement was announced.

In the medium term, we expect oil costs to be slightly lower than our pre-war standard, as the UAE's departure from OPEC+ allows for a gradual boost in its output towards the 5mn barrel daily production target once trade normalises. Versus this backdrop, the UAE will speed up the building of a new West-East pipeline that ought to double the capability of export through Fujairah.

The May PMI surveys reported output growth reaching its greatest level in three months, driven mainly by improved domestic demand. They remain below long-run averages, with weak export orders and rate pressures from greater product and transport costs are a typical theme. Overall, 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 rest of the years.