Major GCC business themes for 2007

1. Oil prices fall and rise: The global oil supply is rising thanks to increased investment and at the same time demand is weakening due to an economic slowdown in the United States. Hence oil prices mid-winter are lower than last summer.

However, there are any number of geopolitical events that could cause an oil price spike in 2007: three potential civil wars in the Middle East; the Iranian nuclear issue; the Nigerian insurgency; and Venezuela. So lower oil prices may not last for long.

2. Real estate boom cools: the US housing crash of 2006 due to higher interest rates is likely to be followed by cooling realty markets around the world for the same reason. Property is always a late business cycle sector but time lags are now catching up.

For the Middle East the stock market crashes of 2006 will most probably be followed by real estate market corrections as the economic slowdown predicted by equities actually arrives. Lower oil prices are a part of this story but an overextended business and investment cycle is cause enough.

3. Gold outperforms equities: With a 23 per cent gain in 2006 the yellow metal is well placed to continue out performance in 2007, particularly if the US dollar comes under further pressure which it would do if lower dollar interest rates were announced after a US stock market correction.

Given the four year rally on Wall Street, a fifth year of increases would be unprecedented and what is unprecedented does not often happen.

4. US dollar rally and decline: If Wall Street crashes then the US dollar would recover as we saw in May 2006 in a limited market correction. However, if the Fed responded to this equity event with an interest rate cut, as would be expected, then such dollar strength could quickly be followed by a renewed bout of devaluation.

5. Terror and war fears overdone: After a series of wars and terrorist incidents in the early 2000s perhaps the defendants will start to gain the upper hand in 2007 and the depths of 2006 might be seen in retrospect as a turning point.

Things could of course get worse. But many protagonists are wearying of conflict and perhaps the peacemakers might be given a chance in 2007.

6. Global business cycle falls: What goes up always goes down! And after a tremendous cyclical recovery from the dot-com crash the world economy is looking a bit over stretched again.

Perhaps after the euphoria of recent mergers and acquisitions activity the mood will turn to consolidation and restructuring, the usual post-excess strategy.

AME Info wishes you all peace and prosperity in 2007!