The survey - conducted in the last two weeks of October by London-based YouGov - contains plenty of food for thought for the region's governments and business leaders. Both will be closely scrutinising the HSBC-MEED Middle East Business Confidence Index (MEBCI). Built from a combination of tracking data from the MEBCS and a broad spectrum of moving macroeconomic data, the index provides a leading indication of changes in the business climate.

Surging money supply

Since its launch in June, the MEBCI has risen to 104.91 points from its inaugural benchmark of 100. The main impetus for the improvement has come from the continued rise in the four-month rolling average oil price - at close to peak capacity production - surging money supply and upwardly revised estimates of both corporate and public sector capital investment programmes. The survey highlighted the confidence regional business leaders have in their ability to grow profits. As figure 2 shows, 38 per cent are forecasting earnings growth of more than 15 per cent in full-year 2004, and 25 per cent are projecting additional growth of more than 15 per cent again in 2005. Even after the exceptional performance expected to be posted this year, only 3 per cent of respondents are anticipating any earnings retreat next year.

The only significant red flag was triggered by the considerable rise - albeit from a low base - in international and regional interest rates. If such upticks continue in the post-election US, they will have an impact on the Gulf economies directly, through the increased cost of borrowing, and indirectly, through the potential for a concomitant strengthening of the dollar - and via the direct pegs, of GCC currencies - against major trading currencies such as the euro, yen and sterling.

Although business confidence is surging, the MEBCS does illustrate both the unevenness of the regional landscape and some of the areas of government policy weakness. Figure 1 charts the marks respondents gave to questions on the regional governments' progress on economic diversification and the creation of benign regulatory operating environments for the private sector. With the partial exception of the UAE, few governments will be proud of the scores they receive. The three most statistically significant measures called for by the panellists are labour market reform, the allowance of 100 per cent foreign ownership of onshore companies and the removal of barriers to intra-regional trade. The MEBCS - which is conducted three times a year - will return to this subject in 12 months.

As figure 3 illustrates, the last point is important: almost 40 per cent of GCC respondents expect their company's cross-border trade to increase by more than 5 per cent next year. This statistic makes interesting reading when compared to the assessments of how successful government policies for economic integration within the GCC have been: a disappointing 4.7 is the mean response. Perhaps pro-EU politicians will allow themselves a small smile.