Why Economic Shifts Will Shape GCC Markets

Threats are slanted to the disadvantage. In the occasion of an extended conflict, the existing effect on the region will be compoundedthrough elevated energy and food costs, declining trade, tourist and remittances, increased fiscal pressures, and displacement. "The present crisis is a plain tip of the work ahead for the area: not only to weather shocks, but to reconstruct more durable economies with more powerful macroeconomic fundamentals, innovate and enhance governance, buy facilities, and improve employment-creating sectors," stated.

With peace and the ideal action, countries can construct the institutions, abilities and competitive sectors that produce opportunities for people." With this long-lasting vision in mind, the report takes a close look at the region's capacity for industrial policy federal government actions to increase strategic service activity as a driver of financial development and task development.

ANSR July GCC PRs 50DR+

Federal governments in the area have embraced commercial policy at a high rate in the last years, often through sovereign wealth funds and state-owned business, but the outcomes have been blended. The report highlights the crucial need for strong institutions and cautious targeting of policies. "As countries face the heavy toll of the present conflict, it is very important to also not forget the work required for lasting peace and prosperity," stated.

Global Investment Prospects across the Middle East

Q2 2026: The ICAEW Economic Update Middle East, is a quarterly financial forecast for the area prepared straight for the finance profession. The GCC economy faces a marked contraction this year pending details of the US-Iran contract to end the war. We anticipate energy flows, tourism and investor sentiment to slowly normalise as war interruptions go away.

ANSR July GCC PRs 50DR+

The interim contract in between the US and Iran is a significant action towards reaching a full-blown offer. A complete return to normality in the Strait of Hormuz will likely take some time, however the danger of a recession-inducing oil rate spike has decreased. Global GDP is expected to grow by 2.4% this year, 0.2 ppt less than we predicted three months earlier, and 3.1% in 2027.

We forecast a 4.1% contraction in Middle East GDP this year (versus forecasted 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 failure to prevent the interruption to regional shipping, war-driven facilities damage and tourism losses.

Our 2026 outlook for the GCC is weaker than three months back, with GDP forecast to agreement by 2.4% compared to a 0.2% decline forecasted previously. We anticipate Oman and Saudi Arabia to be the least negatively affected by the fallout from the dispute, with both economies continuing to broaden this year.

The economic damage incurred in the last couple of months is significant. Saudi GDP data for Q1 revealed growth 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 struck late in the quarter.

Critical Equity Market Insights for Regional Investors

Aside from Oman, all GCC producers along with Iran and Iraq have actually suffered substantial oil and gas production losses because the start of the dispute. Might data 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 assisted prevent an even bigger plunge in output.

ANSR July GCC PRs 50DR+

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

In the medium term, we expect oil prices to be somewhat lower than our pre-war baseline, as the UAE's departure from OPEC+ permits a steady increase in its output towards the 5mn barrel each day production target when trade normalises. Against this background, the UAE will accelerate the building and construction of a new West-East pipeline that ought to double the capacity of export through Fujairah.

The May PMI studies reported output development reaching its strongest level in 3 months, driven mainly by improved domestic demand. However, they stay below long-run averages, with weak export orders and rate pressures from greater product and transportation expenses are a common theme. In general, we anticipate a 1.1% contraction in GCC non-energy sectors this year (compared to 4.2% development pre-war) and a progressive recovery over the rest of the years.