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 deals and money sales. We think the risk of an enduring migrant outflow and a severe decline in the genuine estate sector is low.

As an enduring US-Iran deal takes shape, the fallout from the dispute has tightened local financial conditions, exposing vulnerabilities through capital outflows, wider bond spreads, and weaker investor belief. A lot of GCC sovereigns carry reasonably little financial obligation and financing risks are for that reason limited in the UAE, the reserve bank's liquidity management has reduced instant issues.

That said, Bahrain has had the ability 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 area considering that the war began. High-frequency fiscal information highlight the strain on regional public finances from the conflict.

ANSR July GCC PRs 50DR+

Accelerating Non-Oil Success through Strategic Diversification

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 income and a rise in costs, particularly on aids, showing contingency outlays tied 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 considering that 2017.

GCC inflation dynamics stay uneven, with food rates the primary source of upward pressure and inflation in this category fortifying in Kuwait, Oman and Qatar. By contrast, food inflation stays fairly controlled in Saudi Arabia, likely showing the mitigating impact of its larger domestic food production base and higher supply-chain strength.

We continue to see price pressures as largely transitory rather than indicative of a continual inflationary cycle. Accordingly, we anticipate average inflation to reduce to 2.1% y/y in 2027 as temporary supply-side pressures dissipate. With near-term inflation raised and transit through the Strait likely set to resume slowly, we expect the United States Federal Reserve to keep interest rates on hold until December, and local rate policies to follow suit.

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 provide vital income and FX inflows, have been reduced by the US marine blockade, while non-oil activity has actually been badly hit. In Iraq, oil exports have collapsed to a trickle 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 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 investment, particularly in banking and energy, financial reforms, and the progressive resuming of regional trade links.

How Industrial Diversification Will Transform GCC Markets

The World Bank has actually slashed its 2026 growth projection for Middle East economies, stating general GDP growth 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 actually disrupted markets, increased monetary volatility, and damaged 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 anticipates that the region's aggregate (excluding the Iran) GDP growth will slow down to 1.8 percent in 2026, down from 4.0 percent approximated for 2025. The 2026 projection has actually been devalued by 2.4 portion points since the January forecasts, showing the unfavorable results of the ongoing conflict.

Saudi Arabia: Forecast was downgraded by 1.2 portion points given that January. Growth is now expected to slow from 4.3% in 2025 to 3.1% in 2026, noting that Saudi Arabia's outlook remains the greatest among Gulf economies. United Arab Emirates: Growth forecast for the UAE has fallen by 2.7 portion points given that January.

Qatar: Significantly, development projection for the Qatari economy has seen a sharp decrease of 11.0 portion points considering that January. The economy is now expected to tape-record a contraction of 5.7%, below an approximated growth of 5.3%, due to serious blockage to liquefied gas products. Qatar is an essential gamer 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 petroleum and derivatives. Closing the strait would suggest a complete shutdown of the country's financial lifeline, immediately stopping profits inflows to the state budget. Bahrain: Development projection for Bahrain's economy has declined by 1.8 portion points because January.