How Industrial Diversification Can Shape GCC Markets

Risks are tilted to the drawback. In case of an extended dispute, the current effects on the region will be compoundedthrough raised energy and food rates, 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 only to weather shocks, however to restore more resilient economies with stronger macroeconomic basics, innovate and enhance governance, purchase infrastructure, and improve employment-creating sectors," said.

With peace and the right action, nations can develop the institutions, abilities and competitive sectors that produce opportunities 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 government actions to increase strategic service activity as a motorist of economic growth and task development.

ANSR July GCC PRs 50DR+

Federal governments in the region have actually embraced commercial policy at a high rate in the last decade, often through sovereign wealth funds and state-owned business, however the results have actually been blended. The report highlights the crucial need for strong institutions and mindful targeting of policies. "As nations deal with the heavy toll of the present conflict, it is very important to likewise not forget the work needed for long-lasting peace and success," said.

Assessing GCC Market Resilience for 2026

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly economic projection for the area prepared directly for the finance profession. The GCC economy faces a marked contraction this year pending information of the US-Iran agreement to end the war. We anticipate energy circulations, tourist and financier belief to gradually normalise as war disruptions diminish.

ANSR July GCC PRs 50DR+

The interim agreement 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 danger of a recession-inducing oil price spike has declined. Global GDP is anticipated to grow by 2.4% this year, 0.2 ppt less than we forecasted 3 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 first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stick out as the hardest hit, owing to their failure to avoid the interruption to regional shipping, war-driven infrastructure damage and tourist 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% decrease forecasted formerly. We expect Oman and Saudi Arabia to be the least negatively impacted by the fallout from the conflict, with both economies continuing to expand this year.

The economic damage incurred in the last few months is substantial. Saudi GDP information for Q1 showed development slowed to 3% y/y, with non-oil activities expanding by 2.9%, the weakest speed given that 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 struck late in the quarter.

How Industrial Shifts Will Shape Arabian Markets

Aside from Oman, all GCC manufacturers in addition to Iran and Iraq have suffered substantial oil and gas production losses given that the start of the dispute. May data reveal regional 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 actually assisted avoid an even larger 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 a number of decades. We then anticipate a 23.5% rebound next year, driven largely by normalisation from a significantly depressed base. Oil prices have actually been volatile, reducing below $85 per barrel as the interim arrangement was revealed.

In the medium term, we anticipate oil prices to be a little lower than our pre-war standard, as the UAE's departure from OPEC+ enables a steady boost in its output towards the 5mn barrel each day production target once trade normalises. Against this backdrop, the UAE will accelerate the building 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 greatest level in three months, driven mainly by improved domestic need. Nevertheless, they remain below long-run averages, with weak export orders and cost pressures from greater material and transport expenses are a typical style. Overall, we expect a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% growth pre-war) and a gradual recovery over the rest of the decade.