Jordan’s economy which has been straddled with mounting debt and the burden of caring for the influx of refugees from the conflict in neighbouring Syria since 2011, will see a moderate acceleration over the coming quarters, helped by a rise in exports and strengthening external demand.
Fiscal consolidation in Jordan, however will weigh on household consumption, preventing a stronger economic recovery, BMI research, a unit of the Fitch group said in its latest research note. Overall, Jordan’s real GDP is forecast to grow at 3.0 per cent in 2018 and 3.2 per cent in 2019. The kingdom's economy is projected to expand by 2.4 this year.
BMI’s projections are quite similar to the Washington-based International Monetary Fund, which estimates Jordan’s GDP will grow by 2.3 per cent this year after expanding 2 per cent in 2016.
“We expect rising exports to drive stronger growth in Jordan over the coming quarters, boosted by increasing external demand and improving regional stability,” BMI said. “This expansion will only be gradual, however, as consumption remains sluggish amid the implementation of fiscal consolidation measures.”
The IMF projects Jordanian current account deficit to the narrow this year after it grew to 12.6 per cent last year, reflecting the challenging regional conditions including the Syrian refugee crisis, which the country had to deal with for several years. However, the pressure on economy is expected to ease a little with its main exports including chemicals, textiles and agricultural products picking up over the coming quarters as demand from key markets rises.
The kingdom is expected to benefit from gradually improving economic conditions across the Arabian Gulf region, which altogether accounted for 29 per cent of its total exports in 2016. It is also to likely see exports to Iraq increase, following the late-August reopening of the Turaibil-Karameh border crossing, which was shut in mid-2015 after the so-called Islamic State (IS) took over the Anbar province. Iraq was recipient of more than 18 per cent of the Jordanian exports in 20 13, prior to IS takeover, compared with only 7.6 per cent in 2016.
In terms of services exports, BMI said it expects the economic uptick to be driven by inbound tourism. “Tourism revenues were up 12.7 per cent over the January-October 2017 period, and we expect growth in this segment to remain robust in 20 18, particularly as GCC arrivals and tourism-related spending picks up again,” BMI noted.
The ongoing implementation of austerity measures, as stipulated under Jordan's three-year Extended Fund Facility (EFF) arrangement with the IMF, will continue to weigh on consumption and investment in Jordan over the coming quarters. The government is cutting back on some subsidies, limiting general sales tax and custom duty exemptions, and broadening the income tax base, which will affect households' ability to spend, according to BMI report
“While we believe targets for limiting expansion in the public sector wage bill are likely to be missed, we note that the government's generally limited ability to create jobs over the years ahead means that unemployment will remain high,” BMI said. “The government accounts for between one- and two-thirds of jobs in the kingdom, and we do not expect the private sector to be able to absorb the rising number of entrants into the workforce.”
BMI estimates unemployment to come in at 15.0 per cent of the total labour force in 2018, from a projected 15.3 per cent in 20 17.