How Economic Diversification Will Shape Arabian Markets

Home rates have come under pressure after a period of strong growth, with recent information from the Dubai Land Department showing a drop in mortgage transactions and money sales. We think the risk of a lasting migrant outflow and an extreme decline in the genuine estate sector is low.

As a lasting US-Iran deal takes shape, the fallout from the conflict has tightened up local financial conditions, exposing vulnerabilities through capital outflows, broader bond spreads, and weaker financier sentiment. A lot of GCC sovereigns bring reasonably little debt and financing dangers are therefore restricted in the UAE, the central bank's liquidity management has actually minimized immediate concerns.

That stated, Bahrain has actually had the ability to rely 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 given that the war started. High-frequency financial data highlight the pressure on regional public financial resources from the conflict.

ANSR July GCC PRs 50DR+

Advancing Non-Oil Success through Global Diversification

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 earnings and a rise in costs, particularly on aids, showing contingency expenses connected to the local environment and an acceleration of Vision 2030 spending. In Qatar, the crisis brought oil and gas revenue to a halt, swelling the deficit spending to the biggest considering that 2017.

GCC inflation characteristics stay unequal, with food rates the primary source of upward pressure and inflation in this classification strengthening in Kuwait, Oman and Qatar. By contrast, food inflation remains relatively subdued in Saudi Arabia, likely reflecting the mitigating result of its larger domestic food production base and higher supply-chain resilience.

We continue to view rate pressures as largely transitory rather than indicative of a continual inflationary cycle. Appropriately, we expect typical inflation to reduce to 2.1% y/y in 2027 as temporary 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 interest rates on hold till December, and regional rate policies to follow fit.

We expect Iran's GDP to diminish by 10.8% this year (we forecast a 9.4% contraction three months ago). Oil production and exports, which offer important profits and FX inflows, have been reduced by the US marine blockade, while non-oil activity has actually been seriously hit. In Iraq, oil exports have actually collapsed to a drip 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 worldwide economy after more than a decade of civil war. We prepare for GDP growth to average 9.6% over 2026-2027, supported by renewed investment, particularly in banking and energy, financial reforms, and the steady resuming of local trade links.

International Capital Prospects across the GCC

The World Bank has actually slashed its 2026 development forecast for Middle East economies, stating overall GDP growth in the region is expected 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 facilities, had disrupted markets, increased monetary 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 area's aggregate (omitting the Iran) GDP development will decrease to 1.8 percent in 2026, below 4.0 percent approximated for 2025. The 2026 forecast has been devalued by 2.4 percentage points considering that the January projections, reflecting the adverse impacts of the continuous dispute.

Saudi Arabia: Projection was devalued by 1.2 portion points because January. Development 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: Development forecast for the UAE has fallen by 2.7 percentage points since January.

Qatar: Especially, development projection for the Qatari economy has actually seen a sharp decline of 11.0 percentage points since January. The economy is now anticipated to record a contraction of 5.7%, down from an approximated development of 5.3%, due to extreme obstruction to melted gas supplies. Qatar is an essential gamer in the international energy market, with an international market share of liquefied natural gas (LNG) supplies ranging between 20% and 21%.

Kuwait relies entirely (100%) on the Strait of Hormuz to export its crude oil and derivatives. Consequently, closing the strait would mean a total shutdown of the country's financial lifeline, instantly stopping earnings inflows to the state budget. Bahrain: Growth projection for Bahrain's economy has actually declined by 1.8 portion points because January.