How Economic Diversification Will Shape Arabian Markets

Home prices have come under pressure after a period of strong development, with current data from the Dubai Land Department showing a drop in home loan transactions and money sales. We think the risk of an enduring migrant outflow and a severe decline in the genuine estate sector is low.

As a lasting US-Iran offer takes shape, the fallout from the conflict has tightened up local monetary conditions, exposing vulnerabilities through capital outflows, wider bond spreads, and weaker investor sentiment. Most GCC sovereigns carry fairly little debt and financing threats are for that reason limited in the UAE, the main bank's liquidity management has actually minimized instant issues.

That stated, Bahrain has actually been able to count on support from neighbours, consisting of 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 since the war started. High-frequency fiscal information highlight the strain on regional public finances from the conflict.

ANSR July GCC PRs 50DR+

Critical Equity Capital Insights for GCC Growth

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 profits and a surge in spending, especially on subsidies, reflecting contingency investments connected to the regional environment and a velocity of Vision 2030 spending. In Qatar, the crisis brought oil and gas revenue to a stop, swelling the deficit spending to the biggest given that 2017.

GCC inflation dynamics remain unequal, with food costs the main source of upward pressure and inflation in this classification strengthening in Kuwait, Oman and Qatar. By contrast, food inflation stays reasonably subdued in Saudi Arabia, likely showing the mitigating impact of its larger domestic food production base and higher supply-chain resilience.

We continue to see rate pressures as mainly transitory instead of indicative of a continual inflationary cycle. Accordingly, we expect typical inflation to ease to 2.1% y/y in 2027 as short-lived supply-side pressures dissipate. With near-term inflation elevated and transit through the Strait likely set to resume gradually, we anticipate the US Federal Reserve to keep rates of interest on hold till December, and local 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 provide necessary profits and FX inflows, have actually been cut by the United States naval blockade, while non-oil activity has been significantly struck. In Iraq, oil exports have collapsed to a trickle and we're anticipating GDP to contract 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 decade of civil war. We anticipate GDP growth to typical 9.6% over 2026-2027, supported by restored financial investment, especially in banking and energy, financial reforms, and the gradual reopening of regional trade links.

Key Foreign Investment Prospects in the GCC Region

The World Bank has slashed its 2026 development forecast for Middle East economies, saying overall GDP growth in the area 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 actually interfered with markets, increased financial volatility, and damaged the 2026 development outlook, the World Bank Group said in its Economic Update for the Middle East, North Africa, Afghanistan and Pakistan.

The April 2026 World Bank's Macro Poverty Outlook anticipates that the area's aggregate (leaving out the Iran) GDP growth will decrease to 1.8 percent in 2026, below 4.0 percent approximated for 2025. The 2026 projection has actually been downgraded by 2.4 portion points since the January forecasts, reflecting the adverse results of the continuous dispute.

Saudi Arabia: Projection was devalued by 1.2 portion points because January. Growth 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 strongest among Gulf economies. United Arab Emirates: Development forecast for the UAE has actually fallen by 2.7 portion points because January.

Qatar: Significantly, development forecast for the Qatari economy has seen a sharp decrease of 11.0 percentage points since January. The economy is now anticipated to tape-record a contraction of 5.7%, down from an estimated growth of 5.3%, due to serious blockage to melted gas materials. Qatar is a crucial player in the global energy market, with a global market share of liquefied gas (LNG) products ranging between 20% and 21%.

Kuwait relies totally (100%) on the Strait of Hormuz to export its crude oil and derivatives. Closing the strait would imply a total shutdown of the nation's financial lifeline, instantly halting profits inflows to the state spending plan. Bahrain: Growth projection for Bahrain's economy has actually declined by 1.8 percentage points because January.