Accelerating Economic Growth via Strategic Diversification

Threats are tilted to the disadvantage. In case of an extended dispute, the present impacts on the region will be compoundedthrough raised energy and food rates, declining trade, tourist and remittances, increased fiscal pressures, and displacement. "The existing crisis is a plain reminder of the work ahead for the area: not only to weather shocks, but to rebuild more resilient economies with more powerful macroeconomic principles, innovate and enhance governance, buy infrastructure, and improve employment-creating sectors," said.

With peace and the best action, nations can build the organizations, abilities and competitive sectors that develop opportunities for people." With this long-lasting vision in mind, the report takes a close take a look at the area's potential for industrial policy government actions to increase tactical business activity as a chauffeur of economic development and job creation.

ANSR July GCC PRs 50DR+

Federal governments in the region have embraced industrial policy at a high rate in the last decade, typically through sovereign wealth funds and state-owned business, but the results have actually been blended. The report highlights the important need for strong organizations and mindful targeting of policies. "As nations face the heavy toll of today dispute, it is necessary to also not forget the work needed for lasting peace and success," said.

Future Investment Climate of the GCC

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic forecast for the area prepared directly for the finance occupation. The GCC economy faces a significant contraction this year pending information of the US-Iran agreement to end the war. We expect energy flows, tourist and investor belief to slowly normalise as war interruptions subside.

ANSR July GCC PRs 50DR+

The interim arrangement in between the United States and Iran is a substantial step towards reaching a full-blown deal. A full return to normality in the Strait of Hormuz will likely take some time, but the danger of a recession-inducing oil rate spike has actually declined. 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 anticipate a 4.1% contraction in Middle East GDP this year (versus predicted 3.6% growth before the war), higher than the decrease in the very first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stick out as the hardest hit, owing to their failure to avoid the disturbance to regional shipping, war-driven facilities damage and tourist losses.

Our 2026 outlook for the GCC is weaker than three months back, with GDP projection to agreement by 2.4% compared to a 0.2% decline predicted previously. We anticipate Oman and Saudi Arabia to be the least negatively affected 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 revealed development slowed to 3% y/y, with non-oil activities expanding by 2.9%, the weakest rate 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.

2026 Investment Climate of the GCC

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 information show local production nearly halved 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 assisted avoid an even bigger plunge in output.

ANSR July GCC PRs 50DR+

We forecast GCC oil sector output to contract by 14.5% this year, which will mark the steepest decline in numerous years. We then anticipate a 23.5% rebound next year, driven mainly by normalisation from a badly depressed base. Oil rates have been unpredictable, relieving below $85 per barrel as the interim agreement was revealed.

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

The May PMI studies reported output development reaching its greatest level in three months, driven largely by enhanced domestic need. Nevertheless, they stay listed below long-run averages, with weak export orders and rate pressures from greater product and transport expenses are a typical theme. Overall, we anticipate a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% growth pre-war) and a steady healing over the remainder of the decade.