Accelerating Non-Oil Growth through Strategic Diversification

Residential or commercial property costs have come under pressure after a period of strong development, with recent data from the Dubai Land Department revealing a drop in mortgage deals and cash sales. Nonetheless, we believe the danger of an enduring migrant outflow and a serious downturn in the realty sector is low.

As a long lasting US-Iran offer takes shape, the fallout from the dispute has tightened local financial conditions, exposing vulnerabilities through capital outflows, wider bond spreads, and weaker financier sentiment. The majority of GCC sovereigns bring relatively little financial obligation and funding risks are therefore limited in the UAE, the reserve bank's liquidity management has minimized instant concerns.

That stated, Bahrain has actually been able to count on support from neighbours, including 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 because the war started. High-frequency fiscal information underscore the strain on local public finances from the conflict.

ANSR July GCC PRs 50DR+

How Economic Shifts Will Shape GCC Markets

In Saudi Arabia, the spending plan 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 subsidies, reflecting contingency investments tied to the regional environment and an acceleration of Vision 2030 spending. In Qatar, the crisis brought oil and gas revenue to a stop, swelling the deficit spending to the biggest considering that 2017.

GCC inflation dynamics remain unequal, with food rates the primary source of upward pressure and inflation in this category conditioning in Kuwait, Oman and Qatar. By contrast, food inflation stays fairly subdued in Saudi Arabia, likely showing the mitigating result of its bigger domestic food production base and higher supply-chain strength.

We continue to view price pressures as mainly temporal instead of a sign of a continual inflationary cycle. Accordingly, we expect typical inflation to ease to 2.1% y/y in 2027 as temporary supply-side pressures dissipate. With near-term inflation elevated and transit through the Strait most likely set to resume slowly, we expect the United States Federal Reserve to keep interest rates on hold up until December, and regional rate policies to do the same.

We expect Iran's GDP to diminish by 10.8% this year (we anticipate a 9.4% contraction three months ago). Oil production and exports, which offer necessary revenue and FX inflows, have been cut by the US naval blockade, while non-oil activity has actually been seriously hit. In Iraq, oil exports have actually collapsed to a trickle 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 international economy after more than a decade of civil war. We anticipate GDP development to average 9.6% over 2026-2027, supported by restored financial investment, particularly in banking and energy, monetary reforms, and the gradual reopening of local trade links.

How Industrial Diversification Can Transform Arabian Markets

The World Bank has actually slashed its 2026 development projection for Middle East economies, stating overall GDP development in the region is anticipated 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 interrupted markets, increased monetary volatility, and damaged the 2026 growth 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 Hardship Outlook forecasts that the region's aggregate (omitting the Iran) GDP development will decelerate to 1.8 percent in 2026, down from 4.0 percent approximated for 2025. The 2026 projection has been reduced by 2.4 portion points because the January forecasts, reflecting the negative impacts of the continuous conflict.

Saudi Arabia: Projection was downgraded by 1.2 percentage 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 stays the greatest amongst Gulf economies. United Arab Emirates: Growth projection for the UAE has actually fallen by 2.7 percentage points since January.

Qatar: Significantly, development forecast for the Qatari economy has actually seen a sharp decrease of 11.0 portion points since January. The economy is now expected to tape-record a contraction of 5.7%, below an approximated development of 5.3%, due to extreme blockage to melted gas materials. Qatar is a key player in the global energy market, with a global market share of liquefied gas (LNG) materials varying between 20% and 21%.

Kuwait relies totally (100%) on the Strait of Hormuz to export its unrefined oil and derivatives. Consequently, closing the strait would imply a complete shutdown of the nation's financial lifeline, right away halting earnings inflows to the state spending plan. Bahrain: Development forecast for Bahrain's economy has decreased by 1.8 portion points given that January.