Foreign Capital Prospects within the Middle East

Home prices have come under pressure after a duration of strong growth, with recent information from the Dubai Land Department showing a drop in home mortgage transactions and cash sales. Nevertheless, we believe the danger of a lasting migrant outflow and an extreme downturn in the realty sector is low.

As a long lasting US-Iran offer takes shape, the fallout from the dispute has tightened local monetary conditions, exposing vulnerabilities through capital outflows, larger bond spreads, and weaker investor sentiment. The majority of GCC sovereigns bring fairly little debt and financing threats are therefore restricted in the UAE, the main bank's liquidity management has reduced instant issues.

That stated, Bahrain has actually had the ability to count on assistance from neighbours, including Saudi Arabia and the UAE, and it successfully raised $1bn from an oversubscribed sovereign bond sale this month, marking the first offering from the area since the war started. High-frequency fiscal data underscore the pressure on regional public finances from the dispute.

ANSR July GCC PRs 50DR+

Advancing Non-Oil Success through Strategic Diversification

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, especially on subsidies, reflecting contingency expenses 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 spending plan deficit to the biggest because 2017.

GCC inflation characteristics stay irregular, with food prices the main source of upward pressure and inflation in this category strengthening in Kuwait, Oman and Qatar. By contrast, food inflation remains fairly subdued in Saudi Arabia, likely showing the mitigating impact of its larger domestic food production base and greater supply-chain durability.

We continue to see price pressures as mainly temporal rather than indicative of a sustained inflationary cycle. Appropriately, we expect average inflation to relieve to 2.1% y/y in 2027 as short-lived supply-side pressures dissipate. With near-term inflation raised and transit through the Strait most likely set to resume slowly, we anticipate the United States Federal Reserve to keep rates of interest on hold up until December, and regional rate policies to do the same.

We expect Iran's GDP to shrink by 10.8% this year (we forecast a 9.4% contraction 3 months ago). Oil production and exports, which offer vital earnings and FX inflows, have actually been curtailed by the United States marine blockade, while non-oil activity has been severely hit. 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 international economy after more than a decade of civil war. We prepare for GDP development to typical 9.6% over 2026-2027, supported by restored investment, especially in banking and energy, financial reforms, and the steady resuming of regional trade links.

Analyzing Regional Market Potential for 2026

The World Bank has slashed its 2026 development forecast for Middle East economies, stating overall GDP development 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 destruction of energy and public facilities, had actually disrupted markets, increased monetary volatility, and compromised 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 Poverty Outlook anticipates that the area's aggregate (omitting the Iran) GDP development will slow down to 1.8 percent in 2026, below 4.0 percent estimated for 2025. The 2026 projection has been downgraded by 2.4 percentage points given that the January forecasts, showing the adverse results of the continuous dispute.

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

Qatar: Especially, growth forecast for the Qatari economy has actually seen a sharp decline of 11.0 percentage points since January. The economy is now expected to tape a contraction of 5.7%, below an approximated development of 5.3%, due to severe blockage to liquefied gas materials. Qatar is an essential gamer in the international energy market, with a global market share of melted gas (LNG) materials ranging in between 20% and 21%.

Kuwait relies completely (100%) on the Strait of Hormuz to export its crude oil and derivatives. Closing the strait would suggest a total shutdown of the nation's monetary lifeline, immediately halting income inflows to the state spending plan. Bahrain: Growth projection for Bahrain's economy has actually declined by 1.8 portion points since January.