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Dangers are tilted to the downside. In case of an extended dispute, the present impacts on the area will be compoundedthrough raised energy and food costs, declining trade, tourism and remittances, increased financial pressures, and displacement. "The current crisis is a stark tip of the work ahead for the region: not just to weather shocks, but to rebuild more durable economies with stronger macroeconomic basics, innovate and improve governance, buy facilities, and enhance employment-creating sectors," stated.

With peace and the right action, countries can construct the institutions, capabilities and competitive sectors that produce opportunities for people." With this long-lasting vision in mind, the report takes a close look at the area's potential for industrial policy federal government actions to increase tactical company activity as a driver of financial growth and task development.

ANSR July GCC PRs 50DR+

Federal governments in the area have actually adopted commercial 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 requirement for strong organizations and careful targeting of policies. "As countries face the heavy toll of today conflict, it is essential to also not lose sight of the work needed for long-lasting peace and success," stated.

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Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic projection for the region prepared directly for the finance occupation. The GCC economy faces a significant contraction this year pending details of the US-Iran contract to end the war. We anticipate energy flows, tourist and investor belief to gradually normalise as war disruptions subside.

ANSR July GCC PRs 50DR+

The interim agreement in between the United States and Iran is a substantial action towards reaching a full-blown offer. A full return to normality in the Strait of Hormuz will likely require time, however the threat of a recession-inducing oil rate spike has declined. International GDP is expected to grow by 2.4% this year, 0.2 ppt less than we forecasted 3 months earlier, 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 decrease in the very first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stick out as the hardest hit, owing to their inability to avoid the interruption to regional shipping, war-driven facilities damage and tourist losses.

Our 2026 outlook for the GCC is weaker than 3 months earlier, with GDP projection to contract by 2.4% compared to a 0.2% decrease projected formerly. 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 financial damage sustained in the last few months is significant. Saudi GDP information for Q1 showed growth slowed to 3% y/y, with non-oil activities expanding by 2.9%, the weakest rate since 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.

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Aside from Oman, all GCC manufacturers in addition to Iran and Iraq have actually suffered substantial oil and gas production losses since the start of the dispute. Might information show regional production nearly halved from pre-war levels, with the decline deepening relative to March and April. Rerouting efforts, consisting of by Saudi Arabia through the East-West Pipeline and the UAE through the Habshan-Fujairah pipeline, have actually helped prevent an even bigger plunge in output.

ANSR July GCC PRs 50DR+

We anticipate GCC oil sector output to agreement by 14.5% this year, which will mark the steepest decrease in a number of decades. We then anticipate a 23.5% rebound next year, driven largely by normalisation from a badly depressed base. On the other hand, oil prices have been unpredictable, alleviating 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+ enables a progressive boost in its output towards the 5mn barrel daily production target when trade normalises. Against this backdrop, 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 surveys reported output development reaching its strongest level in three months, driven mostly by improved domestic need. Nevertheless, they stay listed below long-run averages, with weak export orders and price pressures from greater product and transport costs are a typical style. Overall, we anticipate a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% development pre-war) and a steady recovery over the rest of the years.