Steve Brice, Senior Economist at Standard Chartered Bank UAE, says though current economic drivers will maintain the momentum over the coming six months, performance will slow down during 2006-2007.

"Fundamental drivers for strong asset gains are unlikely to change dramatically over the course of the next six months with oil prices expected to remain high, the Federal Reserve to retain its stance for measured interest rate hikes and the aversion to pouring money into developed market investments to remain intact," explained Brice.

"That said, it is getting increasingly difficult to justify that the recent growth performance should be extrapolated into 2006/7. The good news is that governments have the ammunition to cushion any slowdown in the economy, while asset markets should not weaken too dramatically in the near term. However, the risks naturally increase over time, especially if high oil prices push the global economy into the rebalancing of growth away from the US to the rest of the world and the resultant fall in oil prices undermines support for regional asset markets."

Brice predicts the GCC economies will end this year with an average of 6.9 per cent in real terms. "This would make the last three years the fastest-growing period in the organisation's history with an average real growth rate of 7.1 per cent," said Brice.

The Standard Chartered economist pointed out that the top eight performing stock markets in the world in the first half of this year were in the Middle East - four in the Gulf.

"The UAE led the charge with a 114 per cent gain in US dollar terms, followed by Egypt at 98 per cent and Jordan at 75 per cent, Saudi Arabia's stock market rose by 65 per cent," said Brice.

"There has been an increased desire to repatriate and retain oil revenues in the region following the 9/11 attacks in the US in 2001 and the increased attention being paid to anti-money laundering efforts. With so much money looking for a home in a region with relatively shallow asset markets, it is hardly surprising that asset price inflation has accelerated.

"The key question on everybody's lips now is when does this run into problems? Clearly, the current rate of equity and property price appreciation cannot go on forever."