Are we back to the early 1980s? Let us hope not!

From 1981 to 1986 the Middle East experienced a nasty economic slump with the GDP of the GCC states down by 46 per cent. The formerly fastest growing economies were the biggest losers: Saudi Arabia down 53 per cent, Qatar minus 43 per cent and the UAE down 34 per cent and Kuwait 31 per cent.

Would it be a different pattern this time if oil prices headed sharply south as they last did in 1998 during the Asian Financial Crisis? Standard Chartered argues that it would be different this time.

The bank's GDP scenario for $27 per barrel average oil prices in 2007 has Kuwait and Oman as the biggest losers, down 50 per cent and 33 per cent respectively due to a lack of economic diversification away from hydrocarbons.

UAE most protected economy

Meanwhile, Qatar and Saudi would both suffer around a 30 per cent contraction in GDP. Least affected of all, on Standard Chartered Bank's analysis would be the UAE, down 12 per cent because of having the most diversified regional economy.

Abu Dhabi also has around $500 billion in foreign investments to call upon while net foreign assets for Qatar and Saudi Arabia are more limited at $24 billion and $200 billion respectively, particularly on a per capita basis.

Indeed, this reflects the fact that Qatar is emerging as a major hydrocarbon producer with its gas diversification and is going into debt while the UAE has been there for 40 years and consequently has earned huge national savings. Abu Dhabi is also committed to a $175 billion, five-year spending plan, whatever happens to oil prices.

This perhaps puts into perspective any notion that a real estate crisis in Dubai might dent the short to medium term outlook for the UAE. The wealth of Abu Dhabi underwrites this expansion although its wealth would not prevent a shake-out of real estate speculators and a major supply side crunch in the sector.

Investment for the next boom

In fact, the UAE real estate boom of today is creating the low-cost office and residential accommodation needed to handle the next phase of diversification of the UAE economy. But that is not to say that every property developer or investor will be a winner.

On the other hand, the Bank's economists might be guilty of being too impressed by the UAE's diversification. Surely the economy which has experienced the highest growth in a boom period also has the most to lose as the multiplier effect of investment goes into reverse and over-capacity and poor investment decisions show up?

Only time will tell, and anyone living in the region will have to hope that this 'worst case' scenario for 2007 does not come true. But the Bank does everyone a service by reminding us that good times do not last forever and that good business planning should take every possibility into account for survival under all circumstances.