Credit growth in the Gulf Co-operation Council (GCC) countries will pick up by the end of this year and, as improved and brighter economic outlook will induce increased lending by banks, according to analysts.

“Credit remains relatively tight, in the Gulf, where the property-market correction and troubled regional conglomerates are hampering the banking sector’s recovery.

The region’s brighter economic outlook should eventually prompt greater lending by banks, with credit growth picking up by the end of the year,” said analysts at IHS Global Insight, which provides economic and financial information on countries, regions and industries.

In July, International Monetary Fund (IMF) said that the sluggish credit growth - has fallen an average 30 per cent in 2007-2008 to lower single digits - would continue to be a drag on the Gulf’s economic growth.

Global Insight analysts projected that the Gulf’s gross domestic product (GDP) growth to break above its long-term averaging more than five per cent for about two years.

They, however, warned that inherent risks related to oil prices and external demand remain concerns going forward, as does the sustainability of the global recovery in the medium term, particularly as temporary stimulus measures are withdrawn.

They said the recovery of the Arab world is expected to steadily build momentum later this year, as domestic and external economic conditions continue to improve.

After posting its weakest growth in more than two decades of 1.2 per cent in 2009, economic activity across the region is recovering thanks to higher oil prices and strengthening external demand. Indeed, with world economic activity already undergoing an Asia-led rebound, analysts see most of the region's economies further stabilising and strengthening over the next several quarters.

In May, Global Insight revised the region’s GDP growth projection for 2010 upward to 4.6 per cent from 4.3 pr cent in April on the back of signals of a stronger global recovery.

Monetary and fiscal policies will remain supportive to solidify the recovery.

Higher oil prices have helped feed improving business and consumer sentiment in the region, while positive developments regarding Dubai World’s debt troubles have also been a boon to confidence.

According to Global Insight report, the region’s current-account surplus will have a rebuilding year in 2010, but remain well below its 2008 level.

“We see the region’s trade and current-account surpluses recovering up in 2010, thanks to higher oil prices and strengthening external demand. After narrowing to an estimated $54 billion or twp per cent of GDP in 2009, we see the current-account surplus rebounding to $175 billion or seven per cent of GDP in 2010,” analysts said.

Moreover, the trade balance should improve as well. Under current baseline average crude oil-price assumption of $80/barrel in 2010, Global Insight forecast the foreign-trade surplus to rise to $266 billion or 10 per cent of GDP.

Indeed, merchandise exports are expected to rise 24 per cent, to $975 billion in 2010, while imports grow 11 per cent, to $709 billion.

The region's external surpluses should climb higher in 2011.