How Economic Shifts Will Transform GCC Markets

Home prices have actually come under pressure after a duration of strong development, with recent information from the Dubai Land Department revealing a drop in home mortgage deals and money sales. Nevertheless, we think the threat of a lasting migrant outflow and an extreme slump in the real estate sector is low.

As a long lasting US-Iran deal takes shape, the fallout from the dispute has tightened regional financial conditions, exposing vulnerabilities through capital outflows, larger bond spreads, and weaker financier sentiment. A lot of GCC sovereigns carry reasonably little debt and financing threats are therefore limited in the UAE, the reserve bank's liquidity management has actually relieved instant issues.

That said, Bahrain has actually been able to depend on support from neighbours, consisting of Saudi Arabia and the UAE, and it effectively raised $1bn from an oversubscribed sovereign bond sale this month, marking the first offering from the area considering that the war started. High-frequency financial information underscore the pressure on local public finances from the dispute.

ANSR July GCC PRs 50DR+

Upcoming GCC Financial Projections

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 profits and a rise in costs, particularly on aids, reflecting contingency outlays tied to the regional environment and an acceleration of Vision 2030 spending. In Qatar, the crisis brought oil and gas income to a stop, swelling the deficit spending to the biggest because 2017.

GCC inflation dynamics stay irregular, with food costs the main source of upward pressure and inflation in this classification conditioning in Kuwait, Oman and Qatar. By contrast, food inflation remains fairly subdued in Saudi Arabia, likely reflecting the mitigating impact of its bigger domestic food production base and greater supply-chain durability.

We continue to see price pressures as largely temporal rather than a sign of a sustained inflationary cycle. Appropriately, we expect average inflation to alleviate to 2.1% y/y in 2027 as temporary supply-side pressures dissipate. With near-term inflation elevated and transit through the Strait likely set to resume gradually, we expect the United States Federal Reserve to keep interest rates on hold up until December, and regional rate policies to follow fit.

We anticipate Iran's GDP to diminish by 10.8% this year (we anticipate a 9.4% contraction 3 months ago). Oil production and exports, which provide necessary earnings and FX inflows, have been curtailed by the United States marine blockade, while non-oil activity has actually been seriously struck. In Iraq, oil exports have actually collapsed to a drip and we're forecasting 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 decade of civil war. We anticipate GDP development to average 9.6% over 2026-2027, supported by restored investment, especially in banking and energy, monetary reforms, and the gradual reopening of local trade links.

Positioning Middle East Portfolios for 2026 Trends

The World Bank has slashed its 2026 growth 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 compromised 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 region's aggregate (excluding the Iran) GDP development will decrease to 1.8 percent in 2026, below 4.0 percent approximated for 2025. The 2026 projection has actually been downgraded by 2.4 portion points because the January forecasts, reflecting the adverse effects of the ongoing conflict.

Saudi Arabia: Projection was devalued by 1.2 portion points given that January. Growth 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 projection for the UAE has fallen by 2.7 percentage points since January.

Qatar: Especially, growth projection for the Qatari economy has actually seen a sharp decrease of 11.0 portion points considering that January. The economy is now anticipated to tape-record a contraction of 5.7%, down from an approximated growth of 5.3%, due to severe obstruction to melted gas supplies. Qatar is a key gamer in the global energy market, with a global market share of liquefied natural gas (LNG) materials ranging between 20% and 21%.

Kuwait relies completely (100%) on the Strait of Hormuz to export its crude oil and derivatives. Subsequently, closing the strait would imply a complete shutdown of the nation's monetary lifeline, immediately stopping profits inflows to the state budget. Bahrain: Development projection for Bahrain's economy has actually decreased by 1.8 percentage points since January.