It's a weekend morning at the Dubai Mall, a glitzy complex with 1,200 stores, and the shoppers are pouring in. A traffic jam has formed in the basement parking area. With passenger arrivals at Dubai's airport at record highs, retailers expect a good month.

The 55 per cent plunge of oil prices since last June might be expected to usher in an age of austerity in the Gulf, which faces a steep drop in its income.

But austerity isn't happening. The economic defences which the Gulf states built up after the global financial crisis five years ago, to cope with just such a drop in oil, are holding.

Consumers are still spending, companies are investing, and governments are announcing record budgets for 2015. Some economists expect growth in the six-nation Gulf Cooperation Council to accelerate this year.

A number of building projects are likely to be slowed or suspended, especially in Bahrain and Oman, the smallest and financially weakest economies in the six-nation Gulf Cooperation Council (GCC). If oil stays at current levels for several years, the big GCC economies may be forced into painful spending cuts.

But for the foreseeable future, it's largely business as usual in Saudi Arabia, the UAE, Qatar and Kuwait, which have accumulated such large fiscal reserves that they can comfortably keep state spending at high levels.

This is sustaining consumer and corporate sentiment as oil slides. Jarir, a top Saudi retailer, reported a 20 per cent year-on-year jump in fourth-quarter sales. December purchasing manager surveys in Saudi Arabia and the UAE showed non-oil business growing at roughly the same pace as in June.

Iyad Malas, chief executive of Majid Al Futtaim Holding, one of the Gulf's top shopping mall and leisure operators with over 27,000 employees, said the region's business community was uncertain about oil prices but expected solid growth this year.

"Big infrastructure projects have started and government spending is continuing...We're not expecting a slowdown in retail sales this year in Saudi or the region," he told Reuters, adding Majid Al Futtaim saw no reason to alter investment plans.

BUDGET POLICY

The cost to the Gulf of cheaper oil is huge. Jason Tuvey at London's Capital Economics estimates that if Brent crude averages $60 a barrel this year, GCC states will run a combined current account deficit of $60 billion. If oil were at $110, as it was in June, they would enjoy a surplus of $300 billion.

But the structure of the Gulf's oil industry minimises the direct impact of oil price changes on economies. Oil export revenues do not flow straight to the private sector but to governments, which decide how much of them to spend.

That means the key factor for economies is not the oil price but state budget policy. Government announcements over the past two weeks indicate state spending may fall marginally in real terms this year but will stay high and near record levels.

The government of Saudi Arabia, by far the largest GCC economy, plans to raise nominal 2015 spending by 0.6 per cent from its 2014 plan. Dubai announced a 9 per cent spending increase, and even Oman plans a 4.5 per cent rise.

Top officials of other GCC governments, including Abu Dhabi, Qatar and Kuwait, have said spending on economic development will not be cut.

Some governments are using the oil price slide as political cover to raise taxes or cut subsidies, but are stopping well short of austerity. Kuwait cut diesel fuel subsidies but ruled out similar action for petrol; Abu Dhabi raised utility fees.

So growth in the region looks unlikely to fall much if at all this year, and may actually accelerate if other factors are favourable. For example the initial, negative impact of Saudi labour reforms, designed to push more local citizens into jobs by making it harder to hire foreigners, seems to be fading.

"We project real GDP growth in the GCC region to accelerate in the range of 5.0 to 5.5 percent in 2015 from an estimated 4.7 percent in 2014," said Joannes Mongardini, head of economics at Qatar National Bank, the country's largest bank.

He added: "Unless there is a cut in public investments - which is not expected - in the region, we do not see a major impact on overall business sentiment" from cheaper oil.

GCC governments won't be able to avoid big spending cuts indefinitely if oil prices stay low. With Brent at $50, the current level, all of them would probably run budget deficits.

But their financial reserves are so large that they could cope with such deficits for years; the GCC's foreign exchange reserves and sovereign wealth fund assets are worth over 160 percent of gross domestic product, Capital Economics calculates.

Investment bank VTB Capital estimates that at an oil price of $60, the assets of the four big GCC states could fund public spending at current levels for two to five years, or cover budget deficits for four to 14 years - all without recourse to debt, while keeping the GCC's currency pegs to the US dollar.

So far, professional investors seem equally confident. GCC stock markets dominated by retail investors have plunged, but many fund managers think they were over-valued. Bond and currency forward markets have moved little, showing investors don't expect financial stress in the region.

John Sfakianakis, regional director of asset manager Ashmore in Riyadh, said that after a boom in the past decade, the Gulf was entering a new era because of cheaper oil - an era of slightly more modest growth, but by no means a slump.

"There will still be good growth, not necessarily a substantial fall - rates of around 4.3 to 4.5 per cent," he said.  - Reuters