November 2006 was the month that the GCC economic boom peaked. After marching inexorably higher for almost three years, oil prices have decisively shifted into reverse. In August, there was talk of oil hitting $100 a barrel. Four months on, most forecasters suggest it will be not much more than half that figure in 2007 and beyond.

The share market crash this spring in Saudi Arabia and the UAE has the look of a lasting stock price slump. In November for the first time, a Saudi Arabian share offering went to a discount on its initial trading day. Planned flotations are being postponed. Some may never happen. GCC retail investors have lost hope of an early price recovery. They are withdrawing their savings when they can from failing markets. Many will never return.

Cement, steel and skilled labour costs have risen sharply due to the project boom. Conditions that allowed developers to finance projects from advance payments may soon end. Housing shortages have doubled rents in some GCC markets and eroded living standards. Traffic jams, crowded airports and no hotel rooms are evidence of success and that economies are overheating.

The biggest signs of a slowdown are coming from the energy sector. Demand for GCC oil may fall in 2007. Pressure from the US and other oil-consuming nations for urgent Gulf capacity increases is abating. The cost of some projects is twice their original projections. National oil companies will rightly wonder whether it makes sense to invest so much so fast for demand that may not arrive for five more years.

There is still a fizz in the air. The economies of the GCC and of much of the wider Middle East will have expanded in dollar terms by at least 20 per cent in 2006 to make the region the fastest-growing on earth. Businesses are reporting sales and profit growth to match. Banks are awash with liquidity. Speculators have turned to real estate markets for the double-digit annual returns they once enjoyed from Gulf equities. But there is a feeling that the property boom is reaching its peak and a real estate bubble must eventually burst as it did this year in shares.

The prudent are adjusting to the new Gulf realities. Long-term investors, never numerous in GCC equity markets, are exploring alternatives. With nowhere else to go, a wave of international investment originating from Arabia will break across world capital and real estate markets.

In the region, companies raising long-term money will stay loyal to their banks and, perhaps, opt with growing frequency for bond issues rather than expensive equity floats to finance expansion. Instead of public offerings, there will be a growing number of Gulf private placements.

What are the implications for GCC business in 2007? It is probably wise to conclude the white-hot conditions of 2006will not continue, though there will be no slump. Cost control will become increasingly challenging. For many businesses, the biggest issue will be the shortage of skilled employees. It is inevitable that wage costs will rise faster than general inflation for people most in demand. To justify this, human productivity must increase.

A larger, long-term issue will start to rise up the business agenda. National elections in three GCC countries this year will produce a generation of nationals with a mandate to inject fresh perspectives into the development process. The growing number entering the labour market expects reasonable pay and appropriate jobs. In 2007, there will be more questions about the purpose of the boom and who it is supposed to benefit.

And so the Gulf economic party is over. But the GCC economic good times must continue if the region’s dreams of sustainable prosperity and lasting peace are to be fulfilled. Even with oil prices well below $5