Economic activity has gradually improved, helped by a recovery in mining and strong construction sector. Growth stood at 3% in the first three quarters of the year, and is estimated to increase to 3.1% in 2014, up from 2.8% in 2013.
- Growth remains subdued indicating high uncertainty is still weighing on economic activity. Still, savings from oil consumption should boost domestic demand and lower pressure on trade deficit, helping to fuel growth closer to 4% this year. Economic growth in 2015 will solely depend on the private sector, as government expenditures are expected to remain unchanged.
- Annual inflation fell to 2.8% in 2014, as the impact of the fuel price liberalization faded. Rent was the main contributor to inflation, as rent prices increased by 6.9% due to the increased demand from Syrian refugees. For 2015, 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 volatile throughout 2014. 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. For the first eleven months of the year, the fiscal deficit narrowed by JOD 201 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 JOD 2.3 billion or 8.7% of GDP, highlighting the country’s continued dependence on volatile foreign grants.
- For this year, the drop in international oil prices will help the government to fully phase out energy subsidies, and play a large role in easing losses incurred by the National Electricity Power Company (NEPCO). This should ease the government’s gross deficit to 4.4% of GDP compared to 10.1% in 2014.
- Gross public debt continued to trend upwards, and increased to an estimated 90% of GDP in 2014. However, we project that in a USD 55 oil price environment, the public debt will drop to around 88.7% in 2015. Other energy projects and structural reforms , including the recently approved income tax law, would place public debt on a downward path from 2016 onward.
- According to official forecasts, domestic borrowing seems to be increasing over the coming years. However, the projected drop in NEPCO losses and the expected emergence of the local Sukuk market this 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 record highs covering about 7.3 months of imports in 2014, around USD 14.1 billion.
- In 2014, the current account deficit declined to an estimated 7.3% of GDP on the back of higher-than-programmed grants, down from around 10% in 2014. The IMF expects the current account to GDP to fall to 5.9% in 2015, mainly due to a drop in the oil bill. Nevertheless, risks to the current account remain high in 2015, mostly due to significant regional risks.
- Central Bank of Jordan introduced a new monetary framework in February, aiming at encouraging banks to lend to the private sector and allocate liquidity more efficiently.
- CBJ cut the O/N window facility rate by 1%, and introduced weekly Certificate of Deposits worth JOD 1 billion. It also cut benchmark interest rates by 25 basis points, as anticipated by CAB in previous reports, pressing ahead with its expansionary policy and reassuring its trust in the economy and political stability, after it previously cut rates by 75bp in 2014, and 50bp in 2013.
- Government bond yields plunged significantly since the central bank’s announcement, after remaining low throughout 2014.
- Interest rates are likely to continue to fall before stabilizing at low levels over the next few months.
For more details, please click here to download the latest Caieo Amman Bank Jordan Economic Report.
