However, worries are expressed about excessive asset prices a phenomenon primarily affecting the GCC states and the possible knock-on effect of a correction on the banking sector. 'Recent developments have increased the exposure of bank balance sheets to any downturn in asset markets possibly resulting from an unexpected drop in oil prices or increased geopolitical uncertainty and supervisory authorities will need to carefully monitor these risks, particularly in terms of lending to the construction sector,' it said. Regulators are also urged to accelerate reforms to deepen the capital markets.

Surprisingly, given the internal and external political problems facing both countries, Iran and Iraq are singled out for an upbeat outlook. Tehran is expected to maintain healthy growth on the back of high oil revenues, agricultural recovery and strong growth in the manufacturing sector, although double-digit inflation is a blot on the horizon. And GDP growth in Iraq is projected at 10 per cent in 2006. 'Despite the very difficult security environment, Iraq has managed to maintain overall macroeconomic stability,' the report said.

In North Africa, Cairo is credited with having brought inflation under control and with accelerating its privatisation programme. Inflation has also eased in Algeria, where GDP growth is expected to stay strong thanks mainly to high oil prices. And in Morocco and Tunisia, the effects of the removal of textile quotas is found to be having only a modest negative impact on overall growth, which is predicted at more than 5 per cent in both countries in 2006.

Globally, the IMF forecasts an acceleration in GDP growth to 4.9 per cent in 2006 in spite of high oil prices and expectations that they will stay high. The report predicts average prices remaining at $61.25 a barrel in 2006 with a 15 per cent chance of spiking above $80 a barrel by the middle of the year and rising to $63 a barrel in 2007.

www.meed.com/economy