Strategic Industrial Expansion for the Future

Threats are tilted to the disadvantage. In case of a prolonged conflict, the existing effect on the region will be compoundedthrough elevated energy and food rates, decreasing trade, tourism and remittances, increased fiscal pressures, and displacement. "The present crisis is a plain tip of the work ahead for the area: not just to weather shocks, but to restore more durable economies with more powerful macroeconomic basics, innovate and improve governance, buy infrastructure, and improve employment-creating sectors," said.

With peace and the best action, nations can develop the organizations, capabilities and competitive sectors that produce chances for individuals." With this long-lasting vision in mind, the report takes a close appearance at the area's capacity for industrial policy federal government actions to increase strategic business activity as a chauffeur of financial growth and task production.

ANSR July GCC PRs 50DR+

Governments in the region have adopted industrial policy at a high rate in the last decade, frequently through sovereign wealth funds and state-owned business, but the results have been blended. The report highlights the crucial need for strong institutions and cautious targeting of policies. "As nations face the heavy toll of the present conflict, it is necessary to also not forget the work needed for long-lasting peace and prosperity," said.

Essential Economic Shifts in 2026

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic forecast for the region prepared straight for the finance profession. The GCC economy faces a significant contraction this year pending details of the US-Iran contract to end the war. We anticipate energy circulations, tourist and investor sentiment to slowly normalise as war interruptions decrease.

ANSR July GCC PRs 50DR+

The interim contract in between the US and Iran is a substantial step towards reaching a full-blown deal. A complete return to normality in the Strait of Hormuz will likely take time, but the danger of a recession-inducing oil rate spike has actually decreased. International GDP is expected to grow by 2.4% this year, 0.2 ppt less than we forecasted 3 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), greater than the decline in the first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand out as the hardest struck, owing to their inability to avoid the disturbance to local shipping, war-driven facilities damage and tourism losses.

Our 2026 outlook for the GCC is weaker than 3 months back, with GDP forecast to agreement by 2.4% compared to a 0.2% decline predicted formerly. We expect 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 financial damage incurred in the last couple of months is significant. Saudi GDP data for Q1 showed growth slowed to 3% y/y, with non-oil activities expanding 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 interruption hit late in the quarter.

Key International Capital Prospects for the GCC Market

Aside from Oman, all GCC manufacturers in addition to Iran and Iraq have actually suffered extensive oil and gas production losses because the start of the conflict. Might data show local 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 assisted avoid an even bigger plunge in output.

ANSR July GCC PRs 50DR+

Nonetheless, we anticipate GCC oil sector output to contract by 14.5% this year, which will mark the steepest decline in several years. We then anticipate a 23.5% rebound next year, driven largely by normalisation from a badly depressed base. Oil costs have actually been unpredictable, reducing listed below $85 per barrel as the interim agreement was revealed.

In the medium term, we anticipate oil rates to be somewhat lower than our pre-war standard, as the UAE's departure from OPEC+ permits a steady increase in its output towards the 5mn barrel each day production target as soon as trade normalises. Versus this background, the UAE will speed up the construction of a brand-new West-East pipeline that should double the capability of export through Fujairah.

The May PMI surveys reported output growth reaching its strongest level in 3 months, driven mainly by improved domestic demand. They remain listed below long-run averages, with weak export orders and price pressures from greater product and transport expenses are a common style. Overall, we anticipate a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% growth pre-war) and a gradual healing over the rest of the decade.