Can the Middle East escape the economic slowdown?

The global economic climate is getting very chilly this year, along way ahead of winter. The US Tech bubble that burst last year has depressed the electronics industry of the Far East, and world demand levels have shifted decidedly down a gear or two.

This is now impacting on orders in Europe and elsewhere, and threatens to turn into a nasty downward spiral in international trade activity. And while the Federal Reserve's interest rate cuts will ease the pain, pain there will be.

But the Middle East seems comfortably immune and placed in a nicely contra-cyclical situation. Last year the Oil States saw GDP rise by 20% to $320 billion, and Opec's continued successful manipulation of oil prices has kept national incomes on an even keel this year too. That is a big cushion against a worsening global economic situation, and lower interest rates are further stimulating construction and business activity.

Where the global slowdown is having an impact is in the IT sector. Regardless of the resilient Middle East IT market, multinationals in the regions have been firing staff and cutting marketing budgets. However, this may well prove to be a temporary phenomenon as IT spending is rising rapidly by government, state-controlled and private organisations.

Another place where the global slowdown could be felt is in the tourism sector, where affluent Western visitors may suddenly feel less affluent. But this could well be balanced in a surge of visitors from neighbouring GCC states where oil revenues are buoyant and salaries rising.

Some gloomy commentators have even suggested that foreign direct investment might be cut back because of mayhem in world financial markets. This is not likely for two reasons. First, FDI is only expected to total $9.3bn this year, which is small by world standards. And secondly most of the FDI is targeted at the gas sector in the Gulf States and Egypt where banks are keen to lend against excellent long term revenue streams.

Indeed, there may well be even more enthusiasm about lending to projects in the Middle East if there is a dearth of business elsewhere.

Overheating is a more likely problem for the Gulf economies. Dubai is already starting to see this in its Internet and media sectors where many new companies have been formed in a wave of enthusiasm, but revenues appear to be too small to support them all. Such overheating could also occur in other industry sectors, such as retailing, if too many multinationals switch their attention to the region at the same time.

However, the region's two biggest stock markets - Saudi Arabia and Kuwait - are already highlighting the oil boom in the region and have recorded double-digit gains this year. And last week it was noticeable that Arab bourses had a good week while the rest of the worlds' financial markets turned turtle.

Perhaps the local stock markets are the best places to look for an indicator that reflects the business outlook. If so, there is no reason to be gloomy: the Middle East will escape the global slowdown, and in relative terms could do extremely well over the next few years.