Key Economic Diversification for the Future

Residential or commercial property rates have 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 cash sales. We believe the threat of an enduring migrant outflow and a severe slump in the genuine estate sector is low.

As a lasting US-Iran deal takes shape, the fallout from the dispute has tightened local monetary conditions, exposing vulnerabilities through capital outflows, wider bond spreads, and weaker financier belief. The majority of GCC sovereigns carry reasonably little debt and funding risks are for that reason limited in the UAE, the main bank's liquidity management has eased immediate issues.

That said, Bahrain has had the ability to depend on support from neighbours, consisting of Saudi Arabia and the UAE, and it successfully raised $1bn from an oversubscribed sovereign bond sale this month, marking the first offering from the region given that the war began. High-frequency financial information underscore the pressure on local public finances from the conflict.

ANSR July GCC PRs 50DR+

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In Saudi Arabia, the budget deficit more than doubled to SAR125.7 bn, or about 9% of GDP in Q1, driven by a decline in oil profits and a rise in costs, especially on aids, reflecting contingency outlays connected to the local environment and a velocity of Vision 2030 costs. In Qatar, the crisis brought oil and gas profits to a stop, swelling the budget deficit to the largest since 2017.

GCC inflation characteristics remain unequal, with food prices the main source of upward pressure and inflation in this category strengthening in Kuwait, Oman and Qatar. By contrast, food inflation stays relatively subdued in Saudi Arabia, likely reflecting the mitigating result of its bigger domestic food production base and higher supply-chain strength.

We continue to see price pressures as mostly temporal instead of indicative of a sustained inflationary cycle. Appropriately, we anticipate average inflation to ease to 2.1% y/y in 2027 as momentary supply-side pressures dissipate. With near-term inflation elevated and transit through the Strait likely set to resume gradually, we expect the United States Federal Reserve to keep interest rates 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 forecast a 9.4% contraction 3 months ago). Oil production and exports, which offer necessary earnings and FX inflows, have been curtailed by the US marine blockade, while non-oil activity has actually been badly struck. In Iraq, oil exports have actually 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 renewed investment, particularly in banking and energy, financial reforms, and the progressive reopening of regional trade links.

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The World Bank has slashed its 2026 development forecast for Middle East economies, stating overall GDP development in the region is expected to slow from an estimated 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 interfered with markets, increased financial volatility, and compromised 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 forecasts that the region's aggregate (excluding the Iran) GDP growth will decelerate to 1.8 percent in 2026, below 4.0 percent approximated for 2025. The 2026 projection has actually been downgraded by 2.4 percentage points since the January forecasts, showing the negative impacts of the continuous dispute.

Saudi Arabia: Projection was devalued by 1.2 portion points since 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 greatest among Gulf economies. United Arab Emirates: Growth projection for the UAE has actually fallen by 2.7 portion points considering that January.

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

Kuwait relies entirely (100%) on the Strait of Hormuz to export its unrefined oil and derivatives. Consequently, closing the strait would indicate a total shutdown of the nation's financial lifeline, immediately halting profits inflows to the state budget. Bahrain: Growth forecast for Bahrain's economy has declined by 1.8 percentage points considering that January.