2026 Regional Economic Projections

Home costs have actually come under pressure after a duration of strong development, with recent data from the Dubai Land Department revealing a drop in home mortgage deals and money sales. However, we think the danger of a long lasting migrant outflow and a serious downturn in the realty sector is low.

As a lasting US-Iran deal takes shape, the fallout from the dispute has tightened up local monetary conditions, exposing vulnerabilities through capital outflows, broader bond spreads, and weaker financier belief. Most GCC sovereigns bring reasonably little financial obligation and financing threats are for that reason limited in the UAE, the reserve bank's liquidity management has actually alleviated instant issues.

That said, Bahrain has been able to rely 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 very first offering from the area considering that the war began. High-frequency fiscal data underscore the pressure on local public financial resources from the conflict.

ANSR July GCC PRs 50DR+

Essential Capital Expansion in the Future

In Saudi Arabia, the budget 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, particularly on aids, showing contingency expenses tied to the regional environment and an acceleration of Vision 2030 costs. In Qatar, the crisis brought oil and gas earnings to a stop, swelling the deficit spending to the biggest given that 2017.

GCC inflation characteristics stay uneven, with food costs the main source of upward pressure and inflation in this category conditioning in Kuwait, Oman and Qatar. By contrast, food inflation stays fairly subdued in Saudi Arabia, most likely showing the mitigating result of its bigger domestic food production base and greater supply-chain durability.

We continue to view cost pressures as mostly temporal rather than a sign of a continual inflationary cycle. Appropriately, we expect average inflation to ease to 2.1% y/y in 2027 as short-lived supply-side pressures dissipate. With near-term inflation elevated and transit through the Strait likely set to resume slowly, we expect the United States Federal Reserve to keep rates of interest on hold up until December, and regional rate policies to do the same.

We anticipate Iran's GDP to shrink by 10.8% this year (we forecast a 9.4% contraction three months ago). Oil production and exports, which provide essential profits and FX inflows, have actually been curtailed by the US marine blockade, while non-oil activity has actually been severely struck. In Iraq, oil exports have actually 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 decade of civil war. We anticipate GDP development to average 9.6% over 2026-2027, supported by restored investment, particularly in banking and energy, monetary reforms, and the steady reopening of regional trade links.

Future Regional Financial Forecasts

The World Bank has actually slashed its 2026 development projection for Middle East economies, stating overall GDP growth in the area is expected to slow from an approximated 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 disrupted markets, increased monetary volatility, and weakened the 2026 development 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 anticipates that the region's aggregate (omitting the Iran) GDP growth will decelerate to 1.8 percent in 2026, below 4.0 percent estimated for 2025. The 2026 forecast has been devalued by 2.4 portion points because the January forecasts, showing the adverse impacts of the continuous dispute.

Saudi Arabia: Forecast was devalued by 1.2 percentage points given that January. Growth is now anticipated 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: Growth forecast for the UAE has actually fallen by 2.7 portion points since January.

Qatar: Especially, development forecast for the Qatari economy has seen a sharp decrease of 11.0 portion points because January. The economy is now expected to tape a contraction of 5.7%, below an approximated development of 5.3%, due to extreme blockage to melted gas supplies. Qatar is a crucial gamer in the global energy market, with a global market share of liquefied natural gas (LNG) products varying between 20% and 21%.

Kuwait relies completely (100%) on the Strait of Hormuz to export its petroleum and derivatives. Closing the strait would suggest a complete shutdown of the nation's monetary lifeline, right away halting earnings inflows to the state budget. Bahrain: Growth projection for Bahrain's economy has actually declined by 1.8 portion points given that January.