Driving Economic Growth through Global Diversification

Property rates have come under pressure after a duration of strong development, with current information 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 downturn in the realty sector is low.

As a lasting US-Iran offer takes shape, the fallout from the dispute has actually tightened local financial conditions, exposing vulnerabilities through capital outflows, broader bond spreads, and weaker financier belief. Most GCC sovereigns bring reasonably little debt and financing risks are for that reason restricted in the UAE, the reserve bank's liquidity management has minimized instant issues.

That stated, Bahrain has actually had the ability to depend on assistance from neighbours, including Saudi Arabia and the UAE, and it successfully raised $1bn from an oversubscribed sovereign bond sale this month, marking the very first offering from the region since the war started. High-frequency financial data highlight the strain on regional public finances from the conflict.

ANSR July GCC PRs 50DR+

Future Middle Eastern Economic Outlook

In Saudi Arabia, the deficit spending more than doubled to SAR125.7 bn, or about 9% of GDP in Q1, driven by a decline in oil profits and a surge in spending, especially on subsidies, reflecting contingency investments tied to the local environment and an acceleration of Vision 2030 spending. In Qatar, the crisis brought oil and gas profits to a halt, swelling the deficit spending to the largest since 2017.

GCC inflation characteristics remain unequal, with food costs the primary source of upward pressure and inflation in this category conditioning in Kuwait, Oman and Qatar. By contrast, food inflation remains relatively suppressed in Saudi Arabia, most likely showing the mitigating result of its larger domestic food production base and greater supply-chain resilience.

We continue to view price pressures as mainly temporal instead of a sign of a sustained inflationary cycle. Accordingly, we expect average inflation to alleviate to 2.1% y/y in 2027 as short-lived 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 rates of interest on hold until 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 three months ago). Oil production and exports, which supply vital profits and FX inflows, have actually been curtailed by the US marine blockade, while non-oil activity has actually been badly struck. In Iraq, oil exports have 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 global economy after more than a years of civil war. We anticipate GDP growth to typical 9.6% over 2026-2027, supported by restored financial investment, particularly in banking and energy, financial reforms, and the progressive resuming of regional trade links.

Positioning Regional Investments for 2026 Shifts

The World Bank has slashed its 2026 growth forecast for Middle East economies, stating overall GDP growth in the region is anticipated to slow from an estimated 3.6% in January to 1.8% for 2026. The closure of the tactical Strait of Hormuz, and damage of energy and public facilities, had interfered with 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 Hardship Outlook forecasts that the area's aggregate (excluding the Iran) GDP development will slow down to 1.8 percent in 2026, below 4.0 percent approximated for 2025. The 2026 projection has actually been reduced by 2.4 portion points given that the January forecasts, reflecting the adverse effects of the continuous dispute.

Saudi Arabia: Projection was devalued by 1.2 portion points because 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 since January.

Qatar: Significantly, development forecast for the Qatari economy has actually seen a sharp decrease of 11.0 portion points because January. The economy is now expected to tape a contraction of 5.7%, below an approximated development of 5.3%, due to severe blockage to liquefied gas materials. Qatar is an essential player in the international 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 petroleum and derivatives. Closing the strait would mean a complete shutdown of the country's monetary lifeline, immediately stopping earnings inflows to the state budget plan. Bahrain: Growth forecast for Bahrain's economy has actually declined by 1.8 portion points considering that January.