How Economic Diversification Can Shape Arabian Markets

Residential or commercial property costs have actually come under pressure after a duration of strong growth, with current information from the Dubai Land Department revealing a drop in mortgage transactions and money sales. We believe the risk of a lasting 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 conflict has tightened up regional financial conditions, exposing vulnerabilities through capital outflows, larger bond spreads, and weaker financier sentiment. Most GCC sovereigns bring relatively little debt and funding threats are for that reason limited in the UAE, the central bank's liquidity management has reduced immediate concerns.

That stated, Bahrain has actually had the ability to depend 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 very first offering from the area since the war began. High-frequency financial data underscore the pressure on local public financial resources from the conflict.

ANSR July GCC PRs 50DR+

Optimizing Investment Diversification for a 2026 Economy

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 surge in costs, particularly on subsidies, reflecting contingency expenses tied 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 deficit spending to the largest because 2017.

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

We continue to see price pressures as largely transitory instead of indicative of a sustained inflationary cycle. Accordingly, we expect typical inflation to relieve 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 gradually, we expect the US 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 forecast a 9.4% contraction 3 months ago). Oil production and exports, which provide important income and FX inflows, have been curtailed by the US marine blockade, while non-oil activity has been badly hit. 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 worldwide economy after more than a years of civil war. We prepare for GDP development 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.

Assessing GCC Investment Resilience for 2026

The World Bank has actually slashed its 2026 growth projection for Middle East economies, saying 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 tactical Strait of Hormuz, and destruction of energy and public infrastructure, had interrupted markets, increased financial volatility, and weakened 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 Poverty Outlook anticipates that the region's aggregate (leaving out the Iran) GDP growth will decrease to 1.8 percent in 2026, below 4.0 percent estimated for 2025. The 2026 projection has been devalued by 2.4 portion points given that the January forecasts, reflecting the negative effects of the ongoing conflict.

Saudi Arabia: Projection was downgraded by 1.2 portion points given that January. Development is now anticipated to slow from 4.3% in 2025 to 3.1% in 2026, keeping in mind that Saudi Arabia's outlook remains the strongest among Gulf economies. United Arab Emirates: Development forecast for the UAE has actually fallen by 2.7 portion points given that January.

Qatar: Significantly, development forecast for the Qatari economy has seen a sharp decline of 11.0 percentage points given that January. The economy is now anticipated to tape a contraction of 5.7%, down from an estimated growth of 5.3%, due to extreme blockage to melted gas supplies. Qatar is a crucial player in the worldwide energy market, with a worldwide market share of melted gas (LNG) materials ranging in between 20% and 21%.

Kuwait relies entirely (100%) on the Strait of Hormuz to export its petroleum and derivatives. Subsequently, closing the strait would imply a total shutdown of the nation's monetary lifeline, instantly halting profits inflows to the state spending plan. Bahrain: Growth projection for Bahrain's economy has actually declined by 1.8 percentage points because January.