Ammon News - The World Bank said that Jordan's economy showed resilience amid a challenging regional environment last year, with real GDP growth accelerating to 2.7% from 2.6% in 2022, but the repercussions of the conflict in the Middle East could slow growth to 2.4% in 2024.
In the Jordan Economic Monitor Report - Summer 2024, issued by the World Bank, and monitored by Ammon News Agency, Jordan’s economy demonstrated resilience in 2023, achieving modest growth amidst a challenging regional environment. Real GDP growth accelerated to 2.7 percent in 2023, up from 2.6 percent in 2022. Economic growth was broad-based, with manufacturing growth hitting a record high, and robust performances in services and agriculture. In the services sector, restaurants and hotels recorded the second highest growth since 2017.
Going forward, growth is expected to slow to 2.4 percent in 2024 affected by the conflict in the Middle East, with a slight recovery to 2.6 percent projected thereafter.
The primary (i.e., excl. interest payments) fiscal deficit is expected to narrow further in 2024 and to turn into a small surplus by 2025.
While financial challenges in the electricity and water sectors are projected, under current policies, to keep the unconsolidated general government debt level elevated in the near term, consolidated debt is projected to decline gradually.
The report showed that Jordan’s medium-term outlook is weighed by uncertainties surrounding the conflict in the Middle East. While the broader economy has so far shown some resilience, trade has been disrupted and tourism has been adversely impacted by the conflict. A sustained impact on travel could reverse recent improvements in the external sector. Wider disruptions coming from across the border would pose further risks to trade, oil prices, and consumer behavior changes.
Real GDP growth continued to decelerate to reach 2.0 percent in Q1 2024, down from 2.3 percent in Q4-2023 and 2.7 percent in Q3-2023., the report added.
It also indicated that the deceleration since Q3-2023 was mainly due to lower contribution from sectors with higher exposure to the conflict and the associated trade disruption in the Red Sea, such as transport and communication, manufacturing, wholesale and retail trade, and restaurants and hotels.
The report noted that the unemployment rate was stable at 21.4 percent in Q1-2024, unchanged from its level in the previous quarter. The current account deficit widened by USD310.2 million on annual basis to USD1.1 billion in Q1-2024 due to lower travel receipts and higher trade deficit. High frequency indicators point to a significant decline in both import and export volumes through the Aqaba port between January and May 2024, notwithstanding some recovery in March 2024.
The report confirmed that despite the (small) economic growth acceleration, labor market outcomes remain sluggish, with some signs of improvement in the second half of 2023. Unemployment continued to decline for the second consecutive year, reaching 22.0 percent in 2023, compared to 22.8 percent in the previous year.
This included a decline in both males and female unemployment. More recently, the unemployment rate was stable at 21.4 percent in Q1-2024, unchanged from its level in the previous quarter. Labor force participation, however, declined for the second consecutive year, recording 33.2 percent in 2023, compared to 33.4 percent in 2022.
"Female labor force participation recorded 14.0 percent in 2023, broadly unchanged since 2021, staying among the lowest in the world. More recently, female participation increased to 15.5 percent in Q1-2024, which remains lower than the regional average. Despite the lower annual average, the labor force participation inched up slightly in the last quarter of 2023, supported by an increase in female participation," the World Bank said.
"In line with global trends, inflation decelerated significantly in 2023 and is expected to remain contained in 2024. Headline inflation rate decelerated to 2.1 percent in 2023, down from an average of 4.2 percent in the previous year. The deceleration was supported by a favorable base effect, favorable international commodity prices and monetary policy tightening. Policy rates were held unchanged at 7.25 percent since July 2023, while real interest rates remain positive," it added.
Looking forward, inflation is anticipated to remain contained in 2024, supported by the lagged effects of monetary policy tightening and relatively stable international commodity prices, notwithstanding some transitory impact from the conflict in the Middle East, including higher international oil prices as well as higher shipping costs due to the Red Sea disruptions.
Fiscal consolidation continued in 2023, mainly driven by a reduction in current expenditure, while debt levels remained elevated. The Central Government’s fiscal deficit narrowed by 0.5 percentage points to 5.1 percent of GDP in 2023. The decline was supported by lower expenditure, which outweighed the drop in revenues. Expenditure reduction was largely due to the phasing out of fuel subsidies, despite an increase in interest payments and capital expenditure, the bank said.
Meanwhile, revenues went down as both tax revenues and foreign grants declined, despite an increase in non-tax revenue.
Despite fiscal consolidation, both consolidated and unconsolidated general government debt levels continued to rise, reaching 89.2 percent of GDP and 113.8 percent of GDP, respectively, in 2023, with foreign currency debt being a significant contributor.
The external sector improved markedly in 2023, with the current account deficit narrowing to the lowest level since 2019, supported by a lower trade deficit and a surge in tourism receipts. The current account deficit narrowed to 3.7 percent of GDP in 2023, down from 7.8 percent of GDP in the previous year.
The capital and financial account surplus also increased in 2023, mainly due to a significant rise in portfolio investments due to a USD1.25 billion Eurobond issuance by MoF. This outpaced the decline in FDIs and other investment in 2023, relative to the previous year.
The improvement in the current account deficit and larger capital and financial account surplus supported the increase in CBJ’s gross usable foreign reserves, which reached USD 17.3 billion (around 7.0 months of imports) at the end of 2023.
"Jordan’s EMBI spreads reverted to its pre October 7, 2023 levels by December 2023, after a transitory spike in October and November 2023. S&P affirmed its ‘BB–’ long- and short-term foreign and local currency sovereign credit ratings on Jordan with a stable outlook in September 2024. Moody’s upgraded Jordan’s sovereign credit ratings to ‘Ba3’ from ‘B1’ with a stable outlook in May 2024, the first upgrade by Moody’s since 2003," the report indicated.
The report showed that tourist arrivals between October 2023 and June 2024 have declined by 7.5 percent compared with the same period in the previous year, but have been gradually recovering on annual terms since March 2024. The most significant decreases were seen in November 2023 with the start of the ground operations in Gaza and March 2024 with the seasonal impact of fewer tourists during the holy month of Ramadan recording annual decline rates of 16.3 percent and 25.6 percent, respectively.
Since the trough in March 2024, total tourist arrivals have been recovering on an annual basis, registering the first annual increase at 1.5 percent in June 2024.
Primary fiscal surplus (excluding foreign grants) declined by 5.6 percent on annual basis in 5M 2024 as fiscal consolidation slows down affected by the conflict, and the overall fiscal deficit of the central government (CG) widened by 34.5 percent on annual basis in 5M-2024.
Finally, the report concluded that the overall fiscal deficit of the central government (CG) widened by 34.5 percent on annual basis in 5M-2024. This was mainly due to an annual increase in interest payments and an annual decline in income and profit tax revenue, which offset higher foreign grants, sales tax revenue and non-tax revenue. In addition to the deceleration of economic activity growth, the decline in trade volumes through the Aqaba port following the eruption of the conflict, the government of Jordan introduced a temporary exemption on custom duties and sales taxes on sea shipping costs in January 2024 to help contain the impact of high shipping costs attributed to trade disruptions in the Red Sea.
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