The lack of foreign institutional investment will leave the Gulf struggling to overcome negative sentiment amongst domestic retail investors, it says.

In a bleak outlook for the region, the bank says that Dubai in particular was only at the beginning of a real estate correction, and that further job losses and a declining population will decrease consumption.

“We have significant concerns over the potential for a major institutional failure, which would act as an important test for the regulatory framework in Dubai," it adds.

EFG Hermes says that it expects Saudi Arabia and Qatar to be the best performing markets in the region because of their stronger economic fundamentals.