Future Middle Eastern Financial Outlook

Home costs have come under pressure after a period of strong development, with recent data from the Dubai Land Department showing a drop in home loan deals and money sales. Nonetheless, we believe the risk of an enduring migrant outflow and a serious decline in the property sector is low.

As a lasting US-Iran deal takes shape, the fallout from the dispute has tightened regional monetary conditions, exposing vulnerabilities through capital outflows, broader bond spreads, and weaker investor sentiment. Most GCC sovereigns bring reasonably little debt and funding dangers are therefore limited in the UAE, the main bank's liquidity management has actually reduced immediate concerns.

That said, Bahrain has had the ability to depend on support from neighbours, including Saudi Arabia and the UAE, and it effectively raised $1bn from an oversubscribed sovereign bond sale this month, marking the first offering from the region given that the war began. High-frequency fiscal information underscore the pressure on local public financial resources from the dispute.

ANSR July GCC PRs 50DR+

Foreign Investment Opportunities within the Middle East

In Saudi Arabia, the budget deficit more than doubled to SAR125.7 bn, or about 9% of GDP in Q1, driven by a decrease in oil earnings and a rise in costs, especially on subsidies, showing contingency investments tied to the regional environment and an acceleration of Vision 2030 costs. In Qatar, the crisis brought oil and gas earnings to a stop, swelling the spending plan deficit to the biggest because 2017.

GCC inflation dynamics stay unequal, with food costs the primary source of upward pressure and inflation in this classification fortifying in Kuwait, Oman and Qatar. By contrast, food inflation remains reasonably suppressed in Saudi Arabia, most likely reflecting the mitigating result of its larger domestic food production base and higher supply-chain durability.

We continue to view rate pressures as largely transitory instead of indicative of a continual inflationary cycle. Accordingly, we anticipate typical inflation to relieve to 2.1% y/y in 2027 as short-term supply-side pressures dissipate. With near-term inflation raised and transit through the Strait likely set to resume slowly, we expect the US Federal Reserve to keep interest rates on hold till December, and regional rate policies to do the same.

We expect Iran's GDP to shrink by 10.8% this year (we forecast a 9.4% contraction 3 months ago). Oil production and exports, which supply necessary profits and FX inflows, have actually been cut by the US naval blockade, while non-oil activity has been severely hit. In Iraq, oil exports have actually collapsed to a drip and we're anticipating GDP to agreement by around 22% this year, with a sharp 33% rebound in 2027 as oil exports normalise.

By contrast, Syria continues to reintegrate into the international economy after more than a years of civil war. We prepare for GDP development to typical 9.6% over 2026-2027, supported by restored investment, especially in banking and energy, monetary reforms, and the steady resuming of local trade links.

Driving Non-Oil Growth through Global Diversification

The World Bank has actually slashed its 2026 development projection for Middle East economies, saying overall GDP growth in the region is anticipated to slow from an approximated 3.6% in January to 1.8% for 2026. The closure of the strategic Strait of Hormuz, and damage of energy and public facilities, had actually interfered with markets, increased monetary volatility, and deteriorated the 2026 growth outlook, the World Bank Group stated in its Economic Update for the Middle East, North Africa, Afghanistan and Pakistan.

The April 2026 World Bank's Macro Poverty Outlook forecasts that the area's aggregate (omitting the Iran) GDP development will decelerate to 1.8 percent in 2026, below 4.0 percent approximated for 2025. The 2026 forecast has actually been devalued by 2.4 portion points since the January projections, reflecting the unfavorable effects of the ongoing dispute.

Saudi Arabia: Forecast was devalued by 1.2 portion points considering that January. Development is now expected to slow from 4.3% in 2025 to 3.1% in 2026, keeping in mind that Saudi Arabia's outlook stays the greatest among Gulf economies. United Arab Emirates: Growth forecast for the UAE has fallen by 2.7 percentage points because January.

Qatar: Significantly, development projection for the Qatari economy has seen a sharp decline of 11.0 percentage points considering that January. The economy is now anticipated to tape a contraction of 5.7%, below an approximated development of 5.3%, due to serious blockage to melted gas supplies. Qatar is a key player in the worldwide energy market, with a worldwide market share of melted gas (LNG) materials ranging between 20% and 21%.

Kuwait relies entirely (100%) on the Strait of Hormuz to export its petroleum and derivatives. As a result, closing the strait would mean a complete shutdown of the nation's monetary lifeline, immediately halting income inflows to the state budget. Bahrain: Growth projection for Bahrain's economy has actually decreased by 1.8 portion points given that January.