The economic forecasts for this year are striking and nominal gross domestic product (GDP) in the region's biggest economy, Saudi Arabia, is projected to rise to SR 851,000 million ($226,933 million), a 7.4 per cent increase on 2003. Average GDP growth in the GCC countries and Iran is set to exceed 7 per cent in 2004. Current account surpluses are healthy, with Saudi Arabia's balance estimated at $49,000 million, and the average budget surplus for GCC members is projected at 15 per cent of national GDP, with Kuwait heading the charts at 34 per cent.

Evidence of a booming regional economy is not confined to macroeconomic indicators. The performances of GCC stock markets in 2004 have been among the strongest in the world. Saudi Arabia and Qatar have seen market gains of close to 40 per cent, while the UAE equity market has enjoyed a 32 per cent rise. Regional construction is experiencing a surge not seen since the heyday of the late 1970s, with Saudi Arabia and Qatar witnessing huge investment in the sector and Dubai boasting double-digit growth. Banking, too, is enjoying the fruits of the boom. In 2003, GCC bank assets grew by 10 per cent to an estimated $376,000 million, with a total profit increase of 21 per cent. Similar levels of growth have been seen since the turn of the year.

Oil revenues have far exceeded the expectations of most producers. GCC governments based their 2004 budgets on conservative oil price estimates of as little as $18 a barrel. Actual prices have averaged $35 a barrel so far this year, supported by a tight market and the repeated political shocks of the summer months (see box). Attempts to cool the situation by releasing more crude into the market have failed, and several producers are now pumping at close to full capacity. Despite concerns of inherent market instability, the oil revenues keep flooding in.

After similar regional booms in the 1970s and early 1980s, all this sounds like a familiar story. But what differentiates the region's latest oil bonanza is that governments are keeping a grip on public spending. There has, of course, been an increase in expenditure, but in most cases this has been focused on infrastructure development and public services such as schools and hospitals. With regional population growth for 2004 estimated at 3 per cent, and unemployment rising, GCC states are beginning to tackle some of the social problems that crept in during the fallow periods of the late 1990s.

This time, there is also evidence of a prudence not seen in previous booms, and a greater emphasis on long-term economic management. The oil crash in 1998, which saw prices tumble to below $10 a barrel, had ramifications the region is keen not to repeat. Oman, Kuwait, Iran and Qatar are all putting money into oil funds to provide for the future, when prices might not be so high. And budget surpluses are being earmarked for the repayment of national debt and the building up of reserves. In Saudi Arabia, the projected 2004 budget surplus, estimated at 12.5 per cent of GDP, is expected to be used to help the kingdom reduce its domestic debt from 84 per cent of GDP to 70 per cent.

In another welcome departure, Gulf states have not abandoned their reform plans at the first sign of economic prosperity. Regional governments are beginning to recognise not only their over-reliance on hydrocarbons, but also the structural problems inherent in their economies, and are