Advancing Non-Oil Growth through Global Diversification

Property costs have come under pressure after a period of strong growth, with current information from the Dubai Land Department showing a drop in mortgage transactions and money sales. We believe the threat of an enduring migrant outflow and a severe downturn in the genuine estate sector is low.

As an enduring US-Iran deal takes shape, the fallout from the dispute has tightened up local monetary conditions, exposing vulnerabilities through capital outflows, broader bond spreads, and weaker financier belief. Many GCC sovereigns carry relatively little financial obligation and financing dangers are for that reason restricted in the UAE, the central bank's liquidity management has eased immediate concerns.

That said, Bahrain has had the ability to rely on assistance from neighbours, consisting of Saudi Arabia and the UAE, and it effectively raised $1bn from an oversubscribed sovereign bond sale this month, marking the very first offering from the region given that the war began. High-frequency financial data underscore the strain on local public finances from the dispute.

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 decrease in oil revenue and a rise in spending, especially on aids, showing contingency outlays tied 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 deficit spending to the largest since 2017.

GCC inflation characteristics remain unequal, with food costs the primary source of upward pressure and inflation in this category conditioning in Kuwait, Oman and Qatar. By contrast, food inflation remains fairly controlled in Saudi Arabia, likely reflecting the mitigating impact of its bigger domestic food production base and greater supply-chain durability.

We continue to view rate pressures as mostly temporal rather than indicative of a continual inflationary cycle. Accordingly, we anticipate typical inflation to reduce to 2.1% y/y in 2027 as short-lived supply-side pressures dissipate. With near-term inflation elevated and transit through the Strait most likely set to resume gradually, we expect the US Federal Reserve to keep interest rates on hold till December, and local rate policies to do the same.

We anticipate Iran's GDP to shrink by 10.8% this year (we forecast a 9.4% contraction three months ago). Oil production and exports, which provide important earnings and FX inflows, have actually been cut by the US marine blockade, while non-oil activity has been seriously struck. In Iraq, oil exports have actually collapsed to a drip and we're anticipating 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 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 financial investment, especially in banking and energy, monetary reforms, and the progressive resuming of local trade links.

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The World Bank has slashed its 2026 development forecast for Middle East economies, stating total GDP growth 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 actually interrupted markets, increased monetary volatility, and damaged the 2026 growth 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 anticipates that the area's aggregate (omitting the Iran) GDP growth will decrease to 1.8 percent in 2026, down from 4.0 percent approximated for 2025. The 2026 forecast has actually been downgraded by 2.4 portion points because the January forecasts, reflecting the negative effects of the continuous conflict.

Saudi Arabia: Projection was reduced by 1.2 percentage points considering that 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 among Gulf economies. United Arab Emirates: Development forecast for the UAE has fallen by 2.7 percentage points considering that January.

Qatar: Significantly, growth forecast for the Qatari economy has seen a sharp decline of 11.0 percentage points because January. The economy is now anticipated to tape-record a contraction of 5.7%, down from an approximated growth of 5.3%, due to serious obstruction to liquefied gas products. Qatar is an essential player in the worldwide energy market, with a worldwide market share of liquefied natural gas (LNG) products varying between 20% and 21%.

Kuwait relies entirely (100%) on the Strait of Hormuz to export its unrefined oil and derivatives. Subsequently, closing the strait would imply a total shutdown of the country's financial lifeline, instantly stopping income inflows to the state budget plan. Bahrain: Development projection for Bahrain's economy has declined by 1.8 percentage points given that January.