Recent developments in the Jordanian economy:
- Economic growth remained subdued in the first half of the year. GDP grew by 2.8% in the second quarter of this year, down from 3.2% in the first quarter, indicating that high uncertainty is still weighing on economic activities.
- Annual inflation remained just above 3% throughout the year, as the impact of the fuel price liberalization faded. This year, rents was the main contributor to inflation, as rent prices increased due to the increased demand from Syrian refugees. Looking ahead, continued low growth rates and low energy prices are expected to keep inflation rates in check.
- After resuming in late 2013, gas inflows from Egypt were once again interrupted in January of this year, and remained volatile so far this year. This, together with a growing number of Syrian refugees, continue to place pressure on the country’s fiscal and external accounts.
- According to the 2014 budget, the central government deficit is projected to narrow to around 4.3% of GDP this year. However, for the first eight months of this year, the fiscal deficit increased by JD 91 million compared to the same period last year.
- Meanwhile, the fiscal deficit excluding grants, was projected to widen according to the 2014 budget to around JD 2.3 billion or 8.7% of GDP, highlighting the country’s continued dependence on volatile foreign grants.
- One main development in 2014 is an unrepeatable JD 300 million increase in revenues, resulting from licenses for telecom and electricity companies. While this development helped to impede further widening in the fiscal deficit, the government will need to come up with new measures for next year if it plans to reduce its deficit as projected in its budget law for the year 2015.
- Public debt continues to trend upwards. For the first eight months of the year, net public debt reached JD 20.4 billion, around 79.7% of 2014 GDP. Net public debt is expected to increase to around 83% of GDP in 2014.
- Public debt seems to be on a steaper path when we look the gross public debt. In the first 8 months of the year, gross public debt increased by JD 1.7 billion to JD 22.4 billion or around 86.4% of GDP.
- The government has continued to depend on cheap external funding, with the government successfully issuing another U.S. guaranteed government bond ($1 billion) in June 2014. The Eurobond helped provide cheap funding to the government and boosted FX reserves, while also boosting local excess liquidity.
- According to official forecasts, domestic borrowing seems to be increasing over the coming years. However, the expected emergence of the local Sukuk market early next year will likely bring some relief to the government, easing pressures on interest rates.
- The Central Bank of Jordan (CBJ) continued to restore trust, rebuilding its international reserves buffer to about 7 months of imports as of August 2014, currently at an all-time high of $14.5 billion.
- In 2013, the current account deficit declined to nearly 10% of GDP, dropping by 5% of GDP compared to 2012 in view of lower energy imports, higher transfers and private receipts. Nevertheless, risks to the current account remain high in 2014, mostly due to the significant population growth, and continued disruptions in energy imports. The IMF expects the current account deficit to register 10% of GDP in 2014, unchanged from 2013.
- Jordan's Central Bank cut its main benchmark rates by 50 basis points in June 2014. The central bank seems to press ahead with its expansionary policy and trust in the economy and political stability, after it previously cut rates by 25bp in January 2014, and 50bp in 2013.
- Government bond yields remained low but see-sawed throughout the year. Yields have continued to fall after the latest CBJ rate cut, however stabilization was evident in the latest auctions, as government bond yields have ticked up since the beginning of October this year.
- The recent drop in oil prices is likely to bring some relief to the country’s external balances. According to recent official statements, the government expects that a 20% drop in oil prices could lead to a drop in the current account deficit by around JD 800 million
- Interest rates are likely to remain at current low levels over the next few months. Nevertheless, we believe that risks to the interest rate outlook are tilted to the upside and expect rates to increase particularly towards the end of 2015.
For more details, please click here to download Cario Amman Bank's latest Jordan Economic Report.