Gulf Arab economies are seen returning to solid growth in 2010, with Qatar and Oman soaring on rising oil and gas output, but 'corporate distress' remains a risk, the Institute of International Finance said in report.

Real gross domestic product (GDP) in Kuwait, Saudi Arabia, and the United Arab Emirates was expected to grow 4 per cent, 3.5 per cent and 3.4 per cent respectively in 2010, driven mainly by a rebound in oil production, the IIF said in its report.

This follows estimated contractions in Kuwait of 1.9 per cent, 1.2 per cent in Saudi Arabia and 1.5 per cent in the UAE in 2009, according to the IIF.

Banks across the Gulf Arab region have had to take provisions for their exposure to Saad and Ahmad Hamad Algosaibi and Bros Co (AHAB), two Saudi conglomerates that defaulted on debts, with some bankers warning the total cost of writedowns may hit $22 billion and affect around 120 banks.

'Investors (in Saudi Arabia) have been unsettled by the revelations of corporate debt problems,' Saudi-based bank Samba Financial Group said in a separate report.

'A paucity of data means that it is impossible to diagnose the extent or severity of debt problems within the Saudi corporate sector.'

Qatar's economy was set to surge 35.5 per cent next year, according to the IIF, having posted growth estimated at 9.3 per cent in 2009 as the world's largest liquefied natural gas exporter completes a number of LNG expansion projects.

The Omani economy was seen growing 9.7 per cent in 2010, compared to an expected 5.2 per cent expansion this year, the report said.

Purse strings

Gulf Arab governments' current account and fiscal surpluses were likely to remain 'sizeable', the IIF said, but would track a decline and then recovery in the region's oil revenues, the IIF said in its report.

Crude oil prices rallied to peaks of above $147 a barrel in July 2008, before slumping to levels close to $30 a barrel earlier this year as the global downturn battered markets and hit demand. Prices have since recovered to around $70 a barrel.

Oil revenues across the six countries in the Gulf Cooperation Council -- Saudi Arabia, Bahrain, Oman, Qatar, Kuwait and the UAE -- are expected decline to $327 billion in 2009 from $575 billion in 2008, before recovering to $421 billion in 2010, the IIF said.

The current account surplus will shrink to $49 billion in 2009 from $268 billion in 2008, before rebounding to $122 billion in 2010, it said.

Foreign assets of the GCC would rise to around $1.55 trillion by end-2010, excluding asset valuation changes, the IIF said, without providing a comparative figure for 2009. – Reuters