Why Industrial Shifts Will Shape GCC Markets

Home prices have actually come under pressure after a period of strong growth, with current data from the Dubai Land Department revealing a drop in mortgage transactions and cash sales. Nevertheless, we think the threat of a long lasting migrant outflow and an extreme recession in the property sector is low.

As a long lasting US-Iran deal takes shape, the fallout from the conflict has tightened up regional financial conditions, exposing vulnerabilities through capital outflows, wider bond spreads, and weaker financier belief. Most GCC sovereigns carry reasonably little debt and financing dangers are for that reason restricted in the UAE, the main bank's liquidity management has actually minimized immediate concerns.

That stated, Bahrain has been able to count on assistance 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 given that the war started. High-frequency financial data underscore the stress on regional public financial resources from the dispute.

ANSR July GCC PRs 50DR+

Key International Capital Avenues for the GCC Region

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 income and a rise in costs, particularly on aids, showing contingency expenses tied to the regional environment and a velocity of Vision 2030 spending. In Qatar, the crisis brought oil and gas earnings to a stop, swelling the budget plan deficit to the largest since 2017.

GCC inflation dynamics remain uneven, with food costs the primary source of upward pressure and inflation in this classification conditioning in Kuwait, Oman and Qatar. By contrast, food inflation stays reasonably controlled in Saudi Arabia, likely reflecting the mitigating effect of its larger domestic food production base and greater supply-chain resilience.

We continue to view cost pressures as mainly transitory rather than a sign of a continual inflationary cycle. Accordingly, we expect average inflation to relieve to 2.1% y/y in 2027 as momentary supply-side pressures dissipate. With near-term inflation raised and transit through the Strait likely set to resume gradually, we expect the US Federal Reserve to keep rate of interest on hold until December, and local rate policies to follow match.

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 offer essential earnings and FX inflows, have actually been cut by the US naval blockade, while non-oil activity has been significantly hit. In Iraq, oil exports have collapsed to a drip 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 renewed financial investment, particularly in banking and energy, financial reforms, and the gradual reopening of local trade links.

Why Economic Shifts Can Shape GCC Markets

The World Bank has actually slashed its 2026 development projection for Middle East economies, saying total GDP growth in the area is anticipated to slow from an approximated 3.6% in January to 1.8% for 2026. The closure of the tactical Strait of Hormuz, and damage of energy and public infrastructure, had interrupted markets, increased financial volatility, and weakened the 2026 development 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 area's aggregate (leaving out the Iran) GDP growth will slow down to 1.8 percent in 2026, below 4.0 percent approximated for 2025. The 2026 forecast has been reduced by 2.4 portion points considering that the January forecasts, showing the negative effects of the ongoing conflict.

Saudi Arabia: Projection was downgraded 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 remains the greatest among Gulf economies. United Arab Emirates: Development forecast for the UAE has actually fallen by 2.7 portion points since January.

Qatar: Especially, development forecast for the Qatari economy has seen a sharp decrease of 11.0 portion points given that January. The economy is now anticipated to tape-record a contraction of 5.7%, below an estimated development of 5.3%, due to serious blockage to melted gas supplies. Qatar is an essential gamer in the international energy market, with a global market share of liquefied gas (LNG) products ranging 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 indicate a complete shutdown of the nation's monetary lifeline, right away halting income inflows to the state spending plan. Bahrain: Growth forecast for Bahrain's economy has declined by 1.8 portion points since January.