Future Middle Eastern Economic Outlook

Property prices have actually come under pressure after a duration of strong development, with current information from the Dubai Land Department revealing a drop in home mortgage deals and money sales. Nevertheless, we believe the danger of an enduring migrant outflow and a severe recession in the property sector is low.

As a lasting US-Iran offer takes shape, the fallout from the dispute has tightened regional monetary conditions, exposing vulnerabilities through capital outflows, wider bond spreads, and weaker investor belief. Most GCC sovereigns bring relatively little debt and financing dangers are therefore limited in the UAE, the reserve bank's liquidity management has alleviated immediate issues.

That stated, Bahrain has actually had the ability to count 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 began. High-frequency financial data highlight the stress on local public finances from the conflict.

ANSR July GCC PRs 50DR+

Essential Capital Expansion for the Future

In Saudi Arabia, the spending 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 rise in costs, especially on aids, reflecting contingency investments tied to the local environment and an acceleration of Vision 2030 spending. In Qatar, the crisis brought oil and gas profits to a halt, swelling the budget deficit to the largest since 2017.

GCC inflation characteristics remain uneven, with food rates the primary source of upward pressure and inflation in this classification strengthening in Kuwait, Oman and Qatar. By contrast, food inflation stays relatively controlled in Saudi Arabia, most likely reflecting the mitigating effect of its bigger domestic food production base and greater supply-chain strength.

We continue to see price pressures as largely temporal instead of a sign of a continual inflationary cycle. Accordingly, we expect average inflation to reduce to 2.1% y/y in 2027 as short-term supply-side pressures dissipate. With near-term inflation elevated and transit through the Strait most likely set to resume gradually, we anticipate the US Federal Reserve to keep rate of interest on hold until December, and regional rate policies to follow fit.

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 offer important earnings and FX inflows, have actually been curtailed by the US marine blockade, while non-oil activity has actually been seriously struck. In Iraq, oil exports have actually collapsed to a trickle and we're anticipating 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 expect GDP growth to average 9.6% over 2026-2027, supported by renewed investment, especially in banking and energy, monetary reforms, and the gradual resuming of regional trade links.

Positioning GCC Portfolios for 2026 Trends

The World Bank has actually slashed its 2026 development projection for Middle East economies, stating total GDP growth in the area 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 damage of energy and public facilities, 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 Poverty Outlook forecasts that the region's aggregate (leaving out the Iran) GDP growth will decrease to 1.8 percent in 2026, down from 4.0 percent approximated for 2025. The 2026 projection has actually been reduced by 2.4 portion points since the January forecasts, showing the unfavorable effects of the ongoing conflict.

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

Qatar: Notably, development forecast for the Qatari economy has actually seen a sharp decrease of 11.0 portion points given that January. The economy is now expected to record a contraction of 5.7%, below an estimated development of 5.3%, due to serious obstruction to liquefied gas products. Qatar is a crucial player in the global energy market, with a worldwide market share of melted natural gas (LNG) supplies ranging in between 20% and 21%.

Kuwait relies totally (100%) on the Strait of Hormuz to export its unrefined oil and derivatives. Closing the strait would imply a complete shutdown of the country's monetary lifeline, instantly halting income inflows to the state budget plan. Bahrain: Development forecast for Bahrain's economy has decreased by 1.8 percentage points given that January.