How Industrial Diversification Will Shape GCC Markets

Residential or commercial property rates have come under pressure after a period of strong development, with recent information from the Dubai Land Department revealing a drop in home mortgage deals and cash sales. However, we believe the risk of an enduring migrant outflow and a serious downturn in the genuine estate sector is low.

As an enduring US-Iran deal takes shape, the fallout from the conflict has tightened up local monetary conditions, exposing vulnerabilities through capital outflows, broader bond spreads, and weaker investor sentiment. The majority of GCC sovereigns carry relatively little financial obligation and financing dangers are for that reason limited in the UAE, the central bank's liquidity management has minimized immediate issues.

That said, Bahrain has actually been able to rely on assistance from neighbours, including 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 because the war started. High-frequency fiscal information highlight the stress on regional public financial resources from the conflict.

ANSR July GCC PRs 50DR+

Driving Non-Oil 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 decrease in oil earnings and a surge in spending, especially on subsidies, showing contingency expenses connected to the regional environment and an acceleration of Vision 2030 costs. In Qatar, the crisis brought oil and gas revenue to a stop, swelling the budget deficit to the biggest because 2017.

GCC inflation characteristics remain unequal, with food rates the primary source of upward pressure and inflation in this category fortifying in Kuwait, Oman and Qatar. By contrast, food inflation remains reasonably subdued in Saudi Arabia, likely showing the mitigating impact of its larger domestic food production base and greater supply-chain resilience.

We continue to view price pressures as largely transitory instead of indicative of a sustained inflationary cycle. Appropriately, we expect 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 anticipate the United States Federal Reserve to keep rates of interest on hold till December, and regional rate policies to follow suit.

We anticipate Iran's GDP to shrink by 10.8% this year (we forecast a 9.4% contraction 3 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 significantly struck. In Iraq, oil exports have actually collapsed to a trickle 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 years of civil war. We prepare for GDP development to typical 9.6% over 2026-2027, supported by renewed investment, especially in banking and energy, financial reforms, and the steady resuming of regional trade links.

Essential Equity Capital Insights for Regional Investors

The World Bank has actually slashed its 2026 development projection for Middle East economies, stating total GDP development in the region is anticipated to slow from an estimated 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 disrupted markets, increased monetary volatility, and weakened 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 forecasts that the area's aggregate (leaving out the Iran) GDP growth will decrease to 1.8 percent in 2026, below 4.0 percent approximated for 2025. The 2026 forecast has been devalued by 2.4 percentage points because the January forecasts, showing the unfavorable effects of the ongoing conflict.

Saudi Arabia: Projection was reduced by 1.2 percentage points considering that January. Growth is now expected 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 actually fallen by 2.7 percentage points given that January.

Qatar: Notably, development projection for the Qatari economy has seen a sharp decrease of 11.0 portion points given that January. The economy is now anticipated to record a contraction of 5.7%, below an approximated growth of 5.3%, due to serious blockage to liquefied gas materials. Qatar is an essential player in the worldwide energy market, with an international market share of melted gas (LNG) materials ranging between 20% and 21%.

Kuwait relies entirely (100%) on the Strait of Hormuz to export its petroleum and derivatives. Closing the strait would suggest a complete shutdown of the country's monetary lifeline, instantly stopping income inflows to the state budget plan. Bahrain: Development projection for Bahrain's economy has actually declined by 1.8 portion points because January.