Key Economic Expansion for 2026

Risks are tilted to the disadvantage. In the occasion of a prolonged conflict, the present influence on the area will be compoundedthrough elevated energy and food costs, declining trade, tourism and remittances, increased fiscal pressures, and displacement. "The current crisis is a plain pointer of the work ahead for the area: not only to weather shocks, however to restore more resistant economies with more powerful macroeconomic basics, innovate and enhance governance, buy facilities, and improve employment-creating sectors," stated.

With peace and the best action, countries can construct the institutions, capabilities and competitive sectors that develop chances for people." With this long-term vision in mind, the report takes a close take a look at the area's capacity for industrial policy federal government actions to increase strategic business activity as a motorist of financial growth and task creation.

ANSR July GCC PRs 50DR+

Governments in the region have embraced commercial policy at a high rate in the last years, often through sovereign wealth funds and state-owned enterprises, but the results have been blended. The report highlights the crucial need for strong organizations and careful targeting of policies. "As nations face the heavy toll of the present dispute, it is necessary to also not forget the work needed for long-lasting peace and success," said.

Evaluating Regional Market Potential for 2026

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic projection for the region prepared directly for the financing profession. The GCC economy faces a significant contraction this year pending details of the US-Iran contract to end the war. We expect energy flows, tourism and investor belief to gradually normalise as war disturbances go away.

ANSR July GCC PRs 50DR+

The interim arrangement between the United States and Iran is a considerable step towards reaching a full-blown deal. A complete go back to normality in the Strait of Hormuz will likely take some time, but the danger of a recession-inducing oil rate spike has declined. Worldwide GDP is expected to grow by 2.4% this year, 0.2 ppt less than we predicted 3 months earlier, and 3.1% in 2027.

We anticipate 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 hit, owing to their inability to avoid the disturbance to local 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 forecasted previously. We expect Oman and Saudi Arabia to be the least negatively affected 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 growth slowed to 3% y/y, with non-oil activities broadening 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 interruption hit late in the quarter.

Why Industrial Diversification Can Shape GCC Markets

Aside from Oman, all GCC manufacturers as well as Iran and Iraq have suffered comprehensive oil and gas production losses because the start of the conflict. May information show local production almost cut in half from pre-war levels, with the decrease 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 helped avoid an even bigger plunge in output.

ANSR July GCC PRs 50DR+

Nonetheless, we forecast GCC oil sector output to agreement by 14.5% this year, which will mark the steepest decrease in numerous decades. We then anticipate a 23.5% rebound next year, driven mostly by normalisation from a badly depressed base. Oil costs have actually been volatile, easing listed below $85 per barrel as the interim arrangement was revealed.

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 backdrop, the UAE will speed up the building of a new West-East pipeline that should double the capability of export through Fujairah.

The May PMI surveys reported output growth reaching its greatest level in 3 months, driven largely by enhanced domestic demand. Nevertheless, they remain listed below long-run averages, with weak export orders and rate pressures from higher material and transportation expenses are a common theme. In general, we expect a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% growth pre-war) and a steady recovery over the rest of the decade.