GCC Economies Hold Firm Amid Regional Tensions, but Tightening Conditions Loom
Strong fiscal buffers and policy interventions help cushion financial markets, despite regional geopolitical tensions.
The Gulf Cooperation Council (GCC) economies are exhibiting resilience amid regional geopolitical tensions.
According to a report by Oxford Economics, strong fiscal buffers and strategic policy interventions have been instrumental in mitigating the impact on financial markets.
However, the ongoing US-Israel war with Iran is exacerbating financial conditions across the region and testing investor confidence in key markets.
The analysis suggests that while a ceasefire currently holds, the conflict continues to disrupt economic activity across the GCC.
Bahrain is identified as the most vulnerable economy within the region due to its gross government debt, which exceeds 130 percent of its Gross Domestic Product (GDP).
The conflict has resulted in significant regional disruptions, including retaliatory strikes and temporary closures of the Strait of Hormuz, affecting energy markets and trade.
Azad Zangana, head of GCC macroeconomic analysis at Oxford Economics, notes that while most GCC sovereigns have relatively low debt levels, Bahrain's public debt burden is notably high.
Bond markets in the country have experienced volatility but have shown signs of recovery since the announcement of the ceasefire.
Currency swap lines provided by the UAE have contributed to this stabilization.
Despite some improvement in sovereign bond markets, corporate spreads remain elevated, particularly for high-yield sukuk, indicating that borrowing costs are likely to persistently inhibit investment and compel businesses to implement cost adjustments.
Oxford Economics has revised its outlook downward, now projecting a 0.2 percent contraction in GCC real GDP for the year, compared to an earlier forecast of 4.4 percent growth.
This downgrade is attributed to reduced oil production, weaker exports, and decreased tourism due to the ongoing conflict.
Investors have been increasingly divesting from regional assets amid heightened uncertainty, leading to tightening financial conditions despite robust foreign reserve positions in most GCC states.
Equity markets across the region are under pressure, with Bahrain and the UAE witnessing outperformance compared to their peers.
In the UAE, divergent trends between Abu Dhabi and Dubai have become more pronounced.
Dubai's real estate sector is particularly vulnerable due to its heavy reliance on international demand and an anticipated influx of new supply.
This stress has been reflected in wider spreads on developer debt within the credit market.
Liquidity strains are emerging within parts of the UAE banking system, prompting interventions from the central bank.
A comprehensive resilience package has been introduced, providing enhanced access to liquidity, temporary relief on funding and capital buffers, and greater flexibility in loan classification.
Separately, Dubai has approved a 1 billion dirham ($272.26 million) economic support package aimed at mitigating financial pressures, bolstering economic adaptability, and supporting businesses and households amid current conditions.
Contrasting views are presented on the UAE property sector's prospects.
CBRE reports that office markets in both Dubai and Abu Dhabi remain tight due to limited new supply.
Average office rents in Dubai rose by 14 percent year-on-year, while prime rents increased by 16 percent, with occupancy rates remaining at around 95 percent.
Restoring investor confidence, particularly within equity and real estate markets, is deemed essential for reducing medium-term risks and fostering stability across the region as it navigates post-conflict circumstances.
According to a report by Oxford Economics, strong fiscal buffers and strategic policy interventions have been instrumental in mitigating the impact on financial markets.
However, the ongoing US-Israel war with Iran is exacerbating financial conditions across the region and testing investor confidence in key markets.
The analysis suggests that while a ceasefire currently holds, the conflict continues to disrupt economic activity across the GCC.
Bahrain is identified as the most vulnerable economy within the region due to its gross government debt, which exceeds 130 percent of its Gross Domestic Product (GDP).
The conflict has resulted in significant regional disruptions, including retaliatory strikes and temporary closures of the Strait of Hormuz, affecting energy markets and trade.
Azad Zangana, head of GCC macroeconomic analysis at Oxford Economics, notes that while most GCC sovereigns have relatively low debt levels, Bahrain's public debt burden is notably high.
Bond markets in the country have experienced volatility but have shown signs of recovery since the announcement of the ceasefire.
Currency swap lines provided by the UAE have contributed to this stabilization.
Despite some improvement in sovereign bond markets, corporate spreads remain elevated, particularly for high-yield sukuk, indicating that borrowing costs are likely to persistently inhibit investment and compel businesses to implement cost adjustments.
Oxford Economics has revised its outlook downward, now projecting a 0.2 percent contraction in GCC real GDP for the year, compared to an earlier forecast of 4.4 percent growth.
This downgrade is attributed to reduced oil production, weaker exports, and decreased tourism due to the ongoing conflict.
Investors have been increasingly divesting from regional assets amid heightened uncertainty, leading to tightening financial conditions despite robust foreign reserve positions in most GCC states.
Equity markets across the region are under pressure, with Bahrain and the UAE witnessing outperformance compared to their peers.
In the UAE, divergent trends between Abu Dhabi and Dubai have become more pronounced.
Dubai's real estate sector is particularly vulnerable due to its heavy reliance on international demand and an anticipated influx of new supply.
This stress has been reflected in wider spreads on developer debt within the credit market.
Liquidity strains are emerging within parts of the UAE banking system, prompting interventions from the central bank.
A comprehensive resilience package has been introduced, providing enhanced access to liquidity, temporary relief on funding and capital buffers, and greater flexibility in loan classification.
Separately, Dubai has approved a 1 billion dirham ($272.26 million) economic support package aimed at mitigating financial pressures, bolstering economic adaptability, and supporting businesses and households amid current conditions.
Contrasting views are presented on the UAE property sector's prospects.
CBRE reports that office markets in both Dubai and Abu Dhabi remain tight due to limited new supply.
Average office rents in Dubai rose by 14 percent year-on-year, while prime rents increased by 16 percent, with occupancy rates remaining at around 95 percent.
Restoring investor confidence, particularly within equity and real estate markets, is deemed essential for reducing medium-term risks and fostering stability across the region as it navigates post-conflict circumstances.
