How Economic Diversification Will Transform GCC Markets

Property rates have come under pressure after a duration of strong development, with recent information from the Dubai Land Department showing a drop in mortgage transactions and cash sales. However, we think the risk of an enduring migrant outflow and a serious slump in the property sector is low.

As a long lasting US-Iran deal takes shape, the fallout from the dispute has tightened regional financial conditions, exposing vulnerabilities through capital outflows, broader bond spreads, and weaker investor sentiment. A lot of GCC sovereigns bring relatively little financial obligation and financing dangers are therefore restricted in the UAE, the reserve bank's liquidity management has actually alleviated instant concerns.

That stated, Bahrain has actually been able to rely 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 began. High-frequency fiscal data highlight the pressure on local public finances from the conflict.

ANSR July GCC PRs 50DR+

How Economic Diversification Can Transform Arabian Markets

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 revenue and a rise in spending, especially on aids, showing contingency expenses tied to the local environment and an acceleration of Vision 2030 costs. In Qatar, the crisis brought oil and gas revenue to a halt, swelling the budget plan deficit to the largest since 2017.

GCC inflation dynamics remain uneven, with food prices the main source of upward pressure and inflation in this category fortifying in Kuwait, Oman and Qatar. By contrast, food inflation remains fairly controlled in Saudi Arabia, most likely reflecting the mitigating effect of its bigger domestic food production base and greater supply-chain durability.

We continue to see cost pressures as largely transitory instead of a sign of a continual inflationary cycle. Appropriately, we expect typical inflation to reduce 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 rates of interest on hold till December, and local rate policies to follow suit.

We anticipate Iran's GDP to diminish by 10.8% this year (we forecast a 9.4% contraction three months ago). Oil production and exports, which supply important profits and FX inflows, have actually been reduced by the US marine blockade, while non-oil activity has actually been seriously hit. In Iraq, oil exports have collapsed to a drip and we're forecasting 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 global economy after more than a years of civil war. We expect GDP development to average 9.6% over 2026-2027, supported by renewed financial investment, particularly in banking and energy, monetary reforms, and the steady resuming of local trade links.

2026 Regional Financial Forecasts

The World Bank has slashed its 2026 growth forecast for Middle East economies, stating general GDP growth in the region is expected to slow from an estimated 3.6% in January to 1.8% for 2026. The closure of the strategic Strait of Hormuz, and destruction of energy and public infrastructure, had disrupted markets, increased monetary volatility, and damaged the 2026 growth 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 Hardship Outlook anticipates that the area'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 been reduced by 2.4 percentage points considering that the January projections, reflecting the unfavorable results of the ongoing conflict.

Saudi Arabia: Projection was reduced by 1.2 percentage points given that January. Growth 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 strongest amongst Gulf economies. United Arab Emirates: Growth forecast for the UAE has actually fallen by 2.7 percentage points considering that January.

Qatar: Significantly, growth projection for the Qatari economy has actually seen a sharp decrease of 11.0 portion points because January. The economy is now expected to tape-record a contraction of 5.7%, down from an estimated development of 5.3%, due to severe obstruction to liquefied gas materials. Qatar is a key player in the global energy market, with an international market share of liquefied natural gas (LNG) supplies varying between 20% and 21%.

Kuwait relies completely (100%) on the Strait of Hormuz to export its petroleum and derivatives. As a result, closing the strait would suggest a total shutdown of the nation's monetary lifeline, right away stopping revenue inflows to the state budget. Bahrain: Development projection for Bahrain's economy has actually decreased by 1.8 portion points given that January.