Why Economic Diversification Can Shape GCC Markets

Residential or commercial property prices have come under pressure after a duration of strong growth, with recent data from the Dubai Land Department showing a drop in home mortgage deals and money sales. We believe the risk of an enduring migrant outflow and an extreme recession in the real estate sector is low.

As a lasting US-Iran deal takes shape, the fallout from the conflict has actually tightened up local financial conditions, exposing vulnerabilities through capital outflows, larger bond spreads, and weaker investor belief. The majority of GCC sovereigns bring reasonably little debt and funding threats are for that reason restricted in the UAE, the main bank's liquidity management has actually eased instant concerns.

That stated, Bahrain has been able to count on assistance 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 area considering that the war began. High-frequency financial information underscore the pressure on local public finances from the dispute.

ANSR July GCC PRs 50DR+

Assessing Regional Market Potential in 2026

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 revenue and a rise in costs, especially on aids, showing contingency outlays connected to the regional environment and an acceleration of Vision 2030 costs. In Qatar, the crisis brought oil and gas income to a stop, swelling the spending plan deficit to the largest given that 2017.

GCC inflation dynamics remain irregular, with food prices the primary source of upward pressure and inflation in this category conditioning in Kuwait, Oman and Qatar. By contrast, food inflation stays reasonably suppressed in Saudi Arabia, likely showing the mitigating result of its larger domestic food production base and higher supply-chain durability.

We continue to view cost pressures as mostly temporal instead of indicative of a sustained inflationary cycle. Accordingly, we anticipate typical inflation to alleviate to 2.1% y/y in 2027 as short-term supply-side pressures dissipate. With near-term inflation elevated and transit through the Strait most likely set to resume gradually, we expect the United States Federal Reserve to keep rates of interest on hold up until December, and local rate policies to follow suit.

We anticipate Iran's GDP to diminish by 10.8% this year (we anticipate a 9.4% contraction three months ago). Oil production and exports, which supply vital earnings and FX inflows, have actually been cut by the United States marine blockade, while non-oil activity has been seriously struck. In Iraq, oil exports have actually collapsed to a trickle and we're anticipating 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 restored investment, particularly in banking and energy, financial reforms, and the gradual reopening of local trade links.

Future Business Landscape in Arabia

The World Bank has actually slashed its 2026 growth projection for Middle East economies, stating general 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 destruction of energy and public infrastructure, had actually interfered with 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 anticipates that the region's aggregate (leaving out the Iran) GDP growth will slow down to 1.8 percent in 2026, below 4.0 percent estimated for 2025. The 2026 forecast has actually been reduced by 2.4 percentage points considering that the January forecasts, showing the negative results of the ongoing conflict.

Saudi Arabia: Projection was downgraded by 1.2 portion points since January. Development is now anticipated to slow from 4.3% in 2025 to 3.1% in 2026, noting that Saudi Arabia's outlook stays the strongest amongst Gulf economies. United Arab Emirates: Development projection for the UAE has fallen by 2.7 percentage points since January.

Qatar: Notably, development forecast for the Qatari economy has actually seen a sharp decrease of 11.0 portion points given that January. The economy is now expected to record a contraction of 5.7%, below an approximated growth of 5.3%, due to extreme obstruction to liquefied gas supplies. Qatar is a crucial player in the international energy market, with a worldwide market share of liquefied natural gas (LNG) materials ranging in between 20% and 21%.

Kuwait relies totally (100%) on the Strait of Hormuz to export its petroleum and derivatives. Consequently, closing the strait would mean a complete shutdown of the country's financial lifeline, right away stopping income inflows to the state budget. Bahrain: Growth forecast for Bahrain's economy has declined by 1.8 portion points given that January.