How Economic Diversification Will Transform Arabian Markets

Property rates have come under pressure after a duration of strong growth, with current information from the Dubai Land Department revealing a drop in home mortgage transactions and money sales. We believe the risk of a long lasting migrant outflow and a serious recession in the genuine estate sector is low.

As an enduring US-Iran offer takes shape, the fallout from the dispute has tightened regional monetary conditions, exposing vulnerabilities through capital outflows, broader bond spreads, and weaker financier sentiment. Many GCC sovereigns carry reasonably little debt and financing risks are therefore restricted in the UAE, the main bank's liquidity management has relieved instant concerns.

That stated, Bahrain has been able to rely on assistance from neighbours, including Saudi Arabia and the UAE, and it effectively raised $1bn from an oversubscribed sovereign bond sale this month, marking the very first offering from the region given that the war began. High-frequency fiscal data highlight the strain on regional public finances from the conflict.

ANSR July GCC PRs 50DR+

Driving Non-Oil Growth via Global Diversification

In Saudi Arabia, the deficit spending more than doubled to SAR125.7 bn, or about 9% of GDP in Q1, driven by a decrease in oil income and a rise in costs, particularly on subsidies, reflecting contingency outlays connected to the regional environment and an acceleration of Vision 2030 spending. In Qatar, the crisis brought oil and gas earnings to a stop, swelling the deficit spending to the biggest considering that 2017.

GCC inflation characteristics remain irregular, with food rates the primary source of upward pressure and inflation in this classification conditioning in Kuwait, Oman and Qatar. By contrast, food inflation remains fairly controlled in Saudi Arabia, most likely showing the mitigating impact of its larger domestic food production base and higher supply-chain resilience.

We continue to view price pressures as largely temporal rather than indicative of a continual inflationary cycle. Accordingly, we expect 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 most likely set to resume gradually, we anticipate the United States Federal Reserve to keep interest rates on hold up until December, and regional rate policies to do the same.

We expect Iran's GDP to shrink by 10.8% this year (we anticipate a 9.4% contraction 3 months ago). Oil production and exports, which offer essential profits and FX inflows, have been curtailed by the United States marine blockade, while non-oil activity has actually been seriously struck. In Iraq, oil exports have actually collapsed to a drip and we're forecasting 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 worldwide economy after more than a decade of civil war. We prepare for GDP development to typical 9.6% over 2026-2027, supported by restored financial investment, especially in banking and energy, monetary reforms, and the gradual resuming of regional trade links.

Driving Non-Oil Growth via Global Diversification

The World Bank has actually slashed its 2026 growth projection for Middle East economies, saying total GDP development in the region is expected to slow from an approximated 3.6% in January to 1.8% for 2026. The closure of the tactical Strait of Hormuz, and destruction of energy and public infrastructure, had disrupted markets, increased monetary volatility, and weakened 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 region's aggregate (excluding the Iran) GDP development will decelerate to 1.8 percent in 2026, below 4.0 percent estimated for 2025. The 2026 projection has been devalued by 2.4 portion points because the January projections, showing the adverse results of the continuous conflict.

Saudi Arabia: Projection was devalued by 1.2 percentage points given that January. Development is now anticipated to slow from 4.3% in 2025 to 3.1% in 2026, keeping in mind that Saudi Arabia's outlook stays the greatest amongst Gulf economies. United Arab Emirates: Development forecast for the UAE has fallen by 2.7 percentage points since January.

Qatar: Significantly, growth projection for the Qatari economy has seen a sharp decrease of 11.0 percentage points since January. The economy is now expected to tape a contraction of 5.7%, down from an approximated development of 5.3%, due to severe blockage to liquefied gas products. Qatar is a key player in the global energy market, with a worldwide market share of liquefied gas (LNG) products varying in between 20% and 21%.

Kuwait relies completely (100%) on the Strait of Hormuz to export its unrefined oil and derivatives. Closing the strait would suggest a total shutdown of the nation's financial lifeline, instantly stopping income inflows to the state spending plan. Bahrain: Development forecast for Bahrain's economy has actually declined by 1.8 percentage points considering that January.