Accelerating Economic Growth through Global Diversification

Home costs have come under pressure after a duration of strong development, with current data from the Dubai Land Department showing a drop in home mortgage deals and cash sales. We think the threat of a lasting migrant outflow and a serious recession in the real estate sector is low.

As a long lasting US-Iran deal takes shape, the fallout from the conflict has tightened local monetary conditions, exposing vulnerabilities through capital outflows, larger bond spreads, and weaker investor belief. Most GCC sovereigns carry relatively little financial obligation and funding dangers are therefore limited in the UAE, the reserve bank's liquidity management has actually relieved instant concerns.

That said, Bahrain has actually had the ability to rely on assistance from neighbours, consisting of 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 given that the war started. High-frequency financial information underscore the pressure on regional public financial resources from the dispute.

ANSR July GCC PRs 50DR+

Driving Economic Growth via Global Diversification

In Saudi Arabia, the budget plan deficit 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 spending, especially on aids, showing contingency outlays tied to the local environment and an acceleration of Vision 2030 costs. In Qatar, the crisis brought oil and gas revenue to a stop, swelling the deficit spending to the biggest because 2017.

GCC inflation dynamics stay irregular, with food costs the primary source of upward pressure and inflation in this category strengthening in Kuwait, Oman and Qatar. By contrast, food inflation remains relatively suppressed in Saudi Arabia, likely showing the mitigating effect of its larger domestic food production base and greater supply-chain resilience.

We continue to view rate pressures as largely transitory instead of indicative of a sustained inflationary cycle. Accordingly, we anticipate typical inflation to ease 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 do the same.

We anticipate Iran's GDP to shrink by 10.8% this year (we anticipate a 9.4% contraction three months ago). Oil production and exports, which supply important earnings and FX inflows, have been curtailed by the US naval blockade, while non-oil activity has been significantly struck. In Iraq, oil exports have 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 global economy after more than a years of civil war. We anticipate GDP growth to average 9.6% over 2026-2027, supported by restored financial investment, especially in banking and energy, financial reforms, and the gradual resuming of local trade links.

2026 Business Climate in Arabia

The World Bank has slashed its 2026 growth projection for Middle East economies, stating overall GDP development 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 damage of energy and public infrastructure, had actually interrupted markets, increased monetary volatility, and damaged the 2026 development 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 area's aggregate (omitting the Iran) GDP growth will decelerate to 1.8 percent in 2026, down from 4.0 percent approximated for 2025. The 2026 forecast has actually been devalued by 2.4 percentage points since the January forecasts, showing the adverse effects of the ongoing conflict.

Saudi Arabia: Projection was reduced by 1.2 portion points since 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 stays the strongest amongst Gulf economies. United Arab Emirates: Growth forecast for the UAE has actually fallen by 2.7 portion points because January.

Qatar: Notably, development projection for the Qatari economy has actually seen a sharp decline of 11.0 portion points considering that January. The economy is now anticipated to tape-record a contraction of 5.7%, below an estimated development of 5.3%, due to severe blockage to liquefied gas supplies. Qatar is a crucial player in the worldwide energy market, with a global market share of melted gas (LNG) products varying in between 20% and 21%.

Kuwait relies totally (100%) on the Strait of Hormuz to export its petroleum and derivatives. Closing the strait would imply a complete shutdown of the country's financial lifeline, immediately halting revenue inflows to the state budget. Bahrain: Development projection for Bahrain's economy has actually decreased by 1.8 percentage points since January.