Driving Industrial Growth via Strategic Diversification

Residential or commercial property prices have actually come under pressure after a period of strong development, with current data from the Dubai Land Department revealing a drop in home loan transactions and money sales. We believe the threat of a lasting migrant outflow and a severe decline in the real estate sector is low.

As an enduring US-Iran offer takes shape, the fallout from the dispute has tightened up local monetary conditions, exposing vulnerabilities through capital outflows, broader bond spreads, and weaker financier sentiment. A lot of GCC sovereigns bring relatively little financial obligation and financing threats are for that reason limited in the UAE, the reserve bank's liquidity management has minimized immediate issues.

That said, Bahrain has been able to depend 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 region given that the war started. High-frequency financial information highlight the pressure on regional public financial resources from the conflict.

ANSR July GCC PRs 50DR+

Future Middle Eastern Market Projections

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 profits and a surge in costs, 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 profits to a stop, swelling the deficit spending to the largest since 2017.

GCC inflation characteristics remain unequal, with food costs the main source of upward pressure and inflation in this category strengthening in Kuwait, Oman and Qatar. By contrast, food inflation remains reasonably subdued in Saudi Arabia, most likely showing the mitigating effect of its bigger domestic food production base and higher supply-chain resilience.

We continue to view cost pressures as mostly temporal instead of a sign of a continual inflationary cycle. Appropriately, we anticipate typical inflation to ease to 2.1% y/y in 2027 as short-lived supply-side pressures dissipate. With near-term inflation raised and transit through the Strait most likely set to resume slowly, we anticipate the United States Federal Reserve to keep rate of interest on hold until 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 three months ago). Oil production and exports, which supply necessary income and FX inflows, have been curtailed by the US naval blockade, while non-oil activity has been severely struck. 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 worldwide economy after more than a decade of civil war. We anticipate GDP development to average 9.6% over 2026-2027, supported by renewed financial investment, particularly in banking and energy, monetary reforms, and the gradual reopening of local trade links.

Key Foreign Capital Avenues in the GCC Region

The World Bank has actually slashed its 2026 growth projection for Middle East economies, stating overall GDP development in the region 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 actually interrupted markets, increased financial 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 (omitting the Iran) GDP development will decelerate to 1.8 percent in 2026, below 4.0 percent approximated for 2025. The 2026 projection has been downgraded by 2.4 portion points considering that the January forecasts, showing the adverse results of the continuous dispute.

Saudi Arabia: Projection 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, keeping in mind that Saudi Arabia's outlook remains the strongest among Gulf economies. United Arab Emirates: Growth forecast for the UAE has actually fallen by 2.7 portion points considering that January.

Qatar: Notably, growth 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-record a contraction of 5.7%, down from an approximated development of 5.3%, due to severe blockage to melted gas supplies. Qatar is an essential player in the worldwide energy market, with a worldwide market share of melted natural gas (LNG) products varying 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 imply a complete shutdown of the nation's monetary lifeline, right away halting profits inflows to the state budget. Bahrain: Growth projection for Bahrain's economy has decreased by 1.8 percentage points because January.