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Residential or commercial property costs have actually come under pressure after a period of strong growth, with recent information from the Dubai Land Department showing a drop in mortgage transactions and cash sales. Nevertheless, we believe the risk of an enduring migrant outflow and an extreme recession 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, broader bond spreads, and weaker investor belief. The majority of GCC sovereigns bring relatively little debt and financing risks are for that reason limited in the UAE, the main bank's liquidity management has actually reduced immediate issues.

That said, Bahrain has had the ability to count 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 financial information highlight the pressure on local public finances from the dispute.

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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 earnings and a surge in costs, particularly on aids, showing contingency expenses connected to the regional environment and a velocity of Vision 2030 costs. In Qatar, the crisis brought oil and gas revenue to a halt, swelling the deficit spending to the largest given that 2017.

GCC inflation characteristics stay uneven, 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 relatively subdued in Saudi Arabia, most likely reflecting the mitigating impact of its bigger domestic food production base and greater supply-chain strength.

We continue to view cost pressures as mostly temporal instead of a sign of a sustained inflationary cycle. Accordingly, we expect typical inflation to reduce 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 slowly, we expect the US Federal Reserve to keep interest rates on hold up 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 supply important income and FX inflows, have been cut by the United States naval blockade, while non-oil activity has actually been badly hit. In Iraq, oil exports have collapsed to a trickle and we're forecasting 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 international economy after more than a years of civil war. We prepare for GDP development to typical 9.6% over 2026-2027, supported by restored financial investment, especially in banking and energy, monetary reforms, and the gradual reopening of regional trade links.

Future GCC Economic Outlook

The World Bank has slashed its 2026 growth forecast for Middle East economies, stating total GDP development in the area is anticipated to slow from an approximated 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 interrupted markets, increased monetary volatility, and weakened the 2026 development 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 region's aggregate (excluding the Iran) GDP growth will decelerate to 1.8 percent in 2026, below 4.0 percent estimated for 2025. The 2026 projection has been devalued by 2.4 percentage points since the January forecasts, reflecting the adverse effects of the continuous dispute.

Saudi Arabia: Forecast was reduced by 1.2 percentage points since 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 greatest amongst Gulf economies. United Arab Emirates: Development projection for the UAE has fallen by 2.7 portion points considering that January.

Qatar: Significantly, growth forecast for the Qatari economy has seen a sharp decrease of 11.0 portion points because January. The economy is now expected to tape a contraction of 5.7%, down from an approximated development of 5.3%, due to severe obstruction to melted gas products. Qatar is a crucial gamer in the international energy market, with a worldwide market share of liquefied gas (LNG) products ranging in between 20% and 21%.

Kuwait relies totally (100%) on the Strait of Hormuz to export its crude oil and derivatives. Subsequently, closing the strait would indicate a total shutdown of the country's monetary lifeline, right away halting revenue inflows to the state budget. Bahrain: Development forecast for Bahrain's economy has declined by 1.8 portion points considering that January.