Saudi Arabia and Kuwait closed the second quarter heading in opposite directions. The kingdom’s non-oil businesses picked up speed in June while Kuwait’s kept shrinking, and the gap between the Gulf’s two neighbours says a lot about who absorbed the Iran war and who is still bleeding from it.
Saudi Arabia: domestic spending does the work
The Riyad Bank PMI, compiled by S&P Global, rose to 53.3 in June from 52.8 in May, its best reading since February. New business grew at its fastest pace in four months as delayed sales resumed and investor confidence returned. Riyad Bank chief economist Naif Al-Ghaith noted firms reported their “highest level of optimism since January”.
Some perspective on that number. The survey’s long-run average is 56.9, and as recently as January 2025 the index hit 60.5, its highest in a decade. June’s 53.3 is a recovery, not a boom. The kingdom dipped below 50 in March, its first contraction since August 2020, when the war and the Strait of Hormuz closure hit, and it has been climbing back since.
The recovery is also lopsided. Export orders fell steeply for a fourth straight month, squeezed by regional logistics problems and foreign competition, so domestic demand is carrying everything. Costs are the other sore point. The second quarter brought the sharpest input price inflation in 15 years, driven by fuel, freight and war-related supplier charges, and firms passed it on, lifting selling prices at close to the fastest pace in six years. The IMF has already trimmed its 2026 Saudi growth forecast to 2% from 3.1% because of the conflict.
Kuwait: still in retrenchment
Kuwait’s PMI fell to 46.4 in June from 47.2 in May, a fourth straight month below the 50 mark that separates growth from contraction. The reversal has been brutal. Kuwait’s non-oil sector had expanded for 16 consecutive months through December 2025 before the war knocked its PMI from 54.5 in February to 46.3 in March.
June’s detail reads like a company cutting its way through a siege. Export orders collapsed at the steepest rate since the survey began in 2018, excluding the 2020 lockdowns, with border problems with Iraq choking trade. Firms cut jobs for a fourth month, ran down inventories at the fastest pace on record, and raised prices at the quickest rate since September 2021 to defend margins against electricity, marketing and transport costs. Andrew Harker of S&P Global Market Intelligence said conditions were “leaving companies in retrenchment mode”, though he pointed to the memorandum of understanding for a cessation of hostilities between the US and Iran as grounds for second-half hope.
The wider board
The rest of the Gulf sits between the two. The UAE stayed in growth at 50.8 but posted its weakest June in five years, with jobs falling at the fastest rate since August 2020. Qatar improved to a four-month high of 47.6, still contracting but stabilising as operations normalised after the war.
The variable everyone is watching is the June 17 US-Iran memorandum. It reopened the Strait of Hormuz on paper, but shipping is still moving in naval-escorted convoys at roughly a third of normal daily transits. Until that normalises, the trade-dependent Gulf economies stay hostage to logistics, and Saudi Arabia’s domestic-demand cushion keeps looking like the best insurance in the region.
