Today: October 22, 2016, 1:49 pm

Jordan's political outlook long-term is amongst the most stable in the region in 2014
Jordan and the West Bank and Gaza Business Forecast Report Q1 2014 - a new country guide report on 2014-03-17 07:11:01
We maintain the view that Jordan´s long-term political outlook is among the most stable in the region, with the monarchy having implemented a series of political and economic reforms in recent years. Nonetheless, the social uprisings that emerged in the region since 2011 are indicative of the threat that low living standards and lack of political freedoms pose to long-term stability. While we expect the regime to navigate through its current troubles, deteriorating economic conditions and public finances are reducing its ability to manoeuvre.

The pace of Jordanian economic activity will remain relatively lacklustre over 2014. That said, domestic demand could see a slight rebound on the back of recent monetary easing measures and an ongoing recovery in construction activity, backed by development grants from the Gulf Cooperation Council economies. We retain our real GDP growth forecast of 3.1% for 2014, slightly up from an expected 2.7% in 2013.

Jordanian industries will struggle against regional competitors through the coming years, weighed down by rising energy costs and multiple tax increases. That said, the government´s ongoing energy diversification efforts will very likely reap dividends for Jordanian firms over the longer term. This is especially true given that we see other countries increasingly scaling down industrial subsidies, evening out cost differentials.

Jordan´s external accounts have struggled to improve over 2013, leading to a downward revision in our current account forecasts. We now forecast a current account deficit of 11.2% of GDP for 2014, from an expected 14.7% in 2013. While increased trade with new markets could help support export growth in the near term, efforts towards energy diversification will provide a more substantive improvement to the current account deficit from 2015 onward.

Maintaining consolidation measures will be key to persuading international donors to speed up their assistance to the country. However, actual delivery of funds has been slow in the past, and there could be a risk that 2014 turns out to be another poor year for Jordan in terms of foreign grants. This would once again raise fears over the possibility of an uncontrolled devaluation of the dinar.

The implementation of the reconciliation agreement between rival factions Fatah and Hamas will face major difficulties, as ideological differences between the two parties remain stark, and Israel and the international community will continue to exert pressure on Fatah to abandon its efforts to make a deal with Hamas.

Our outlook for private investment and exports remains bleak, with cutbacks in government spending (prompted by a drought in external funding) set to weigh on headline growth.

Israeli-Palestinian peace talks resumed in August 2013 after three years of suspension. However, we retain our view that despite ongoing efforts by US Secretary of State John Kerry, the current political configuration in Israel, combined with the increasing fragmentation of the Palestinian Authority, will hinder any progress in negotiations.

We have sharply revised down our near-term growth forecasts for the Palestinian territories and now project average annual growth of 4.2% between 2013 and 2017, half the 8.4% growth rate seen over 2008-2012. Financing constraints, as well as Israeli restrictions on trade and movement, will continue to hamper economic activity over the coming years. Progress in the Israeli-Palestinian peace negotiations would constitute a sizeable upside risk, but remains unlikely for now.

Any sustained punitive economic measures imposed by Israel that further constrain exports and imports, or disrupt governmental revenue flows, would pose downside risks to our forecasts for growth and the government budget.

Popular discontent, either with Israel or related to the lack of progress among Fatah and Hamas, could lead to social unrest and thereby undermine the growth prospects of the West Bank and Gaza, and weigh on the territories´ political risk profile.

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