Upcoming Regional Economic Outlook

Threats are slanted to the disadvantage. In case of an extended conflict, the existing influence on the area will be compoundedthrough raised energy and food costs, decreasing trade, tourist and remittances, increased fiscal pressures, and displacement. "The present crisis is a plain reminder of the work ahead for the region: not only to weather shocks, but to rebuild more resilient economies with more powerful macroeconomic fundamentals, innovate and enhance governance, purchase infrastructure, and increase employment-creating sectors," stated.

With peace and the best action, nations can construct the institutions, abilities and competitive sectors that develop opportunities for individuals." With this long-lasting vision in mind, the report takes a close take a look at the area's capacity for industrial policy government actions to increase strategic business activity as a motorist of economic development and job development.

ANSR July GCC PRs 50DR+

Governments in the area have actually adopted commercial policy at a high rate in the last years, frequently through sovereign wealth funds and state-owned enterprises, but the outcomes have been blended. The report highlights the important need for strong organizations and cautious targeting of policies. "As countries deal with the heavy toll of the present conflict, it is necessary to also not forget the work needed for long-lasting peace and prosperity," said.

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Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial projection for the area prepared directly for the finance profession. The GCC economy deals with a marked contraction this year pending information of the US-Iran contract to end the war. We anticipate energy circulations, tourism and investor sentiment to gradually normalise as war disruptions subside.

ANSR July GCC PRs 50DR+

The interim arrangement in between the United States and Iran is a considerable step towards reaching a full-blown offer. A full go back to normality in the Strait of Hormuz will likely take some time, however the threat of a recession-inducing oil cost spike has actually declined. Global GDP is expected to grow by 2.4% this year, 0.2 ppt less than we predicted three months ago, 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 very first year of the Covid pandemic. Kuwait, Iran, Iraq and Qatar stand apart as the hardest hit, owing to their inability to avoid the interruption to local shipping, war-driven facilities damage and tourism losses.

Our 2026 outlook for the GCC is weaker than three months earlier, with GDP forecast to contract by 2.4% compared to a 0.2% decrease forecasted formerly. We anticipate 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 financial damage incurred in the last couple of months is significant. Saudi GDP data for Q1 showed development slowed to 3% y/y, with non-oil activities broadening by 2.9%, the weakest rate since 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 disruption hit late in the quarter.

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Aside from Oman, all GCC manufacturers as well as Iran and Iraq have suffered extensive oil and gas production losses given that the start of the conflict. Might data reveal local 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 helped prevent an even larger plunge in output.

ANSR July GCC PRs 50DR+

Nonetheless, we anticipate GCC oil sector output to agreement by 14.5% this year, which will mark the steepest decrease in numerous decades. We then expect a 23.5% rebound next year, driven mostly by normalisation from a badly depressed base. Meanwhile, oil costs have been unpredictable, relieving below $85 per barrel as the interim contract was announced.

In the medium term, we anticipate oil rates to be slightly lower than our pre-war baseline, as the UAE's departure from OPEC+ enables a steady increase in its output towards the 5mn barrel each day production target once trade normalises. Versus this background, the UAE will speed up the building and construction of a new West-East pipeline that must double the capacity of export through Fujairah.

The May PMI studies reported output growth reaching its greatest level in three months, driven mainly by enhanced domestic need. Nevertheless, they stay listed below long-run averages, with weak export orders and cost pressures from greater material and transportation costs are a common theme. Overall, we expect a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% development pre-war) and a gradual recovery over the rest of the years.