Growth will remain below levels required to improve markedly job prospects and general living standards and to alleviate poverty
Annual average GDP growth in the ten-year period to end-2014 was +5.1% and in 2004-08 was +8%. Since 2010, however, GDP growth has under-performed, with annual growth of around +3% in 2009-14. The downturn reflects both domestic and regional/global causes. On the home front, remedial policies to limit the twin deficits in the fiscal and current accounts and to maintain IMF support have involved slower growth. Policymakers appear determined to limit the twin deficits (despite the influx of in excess of 1.2 mn Syrian refugees) and data suggest that they have made progress in this regard. Externally, a relatively weak global economy and a highly uncertain regional outlook (including Iraq as well as Syria) have slowed growth. GDP growth in 2014 was +3% and EH expects a similar rate for 2015 and +3.5% in 2016, although for the latter year the risks are on the downside. Much depends on regional factors largely outside the control of Jordan.
Monetary policy is likely to remain stable
Monetary policy is geared towards maintenance of the kingdom's pegged exchange rate (JOD0.71:USD1). This regime has long-established credibility, underpinned by a steady increase in foreign exchange reserves, and EH does not expect a marked policy change over the forecast period.
External accounts – win some, lose some
Jordan’s external accounts are affected significantly by the international oil price in two diverging ways: (i) crude oil and petroleum products account for 29% of the total import bill. Benchmark oil prices are currently down -51% y/y, so there should be a direct benefit to Jordan’s trade account, although some oil supplies were already provided on concessional terms and (ii) the strength of trade, tourism and workers’ remittances depend on the well-being of the regional economy, so weaker oil prices can also exert negative effects on oil-importing Jordan. The annual current account deficit/GDP ratio was in double digits in the period 2011-13 and reached -15% of GDP in 2012. EH estimates that the current account deficit in 2014 will be -7% of GDP and expects further improvement to -5.5% in 2015. If global demand permits a moderate boost to oil prices in 2016, EH expects the deficit to widen back to -7% in 2016. Although external deficits have improved they require the continuing support of bilateral and multilateral agencies.
Currently, the Islamic State (IS) controls some border crossings between Jordan and Iraq, with associated reduced trade traffic. As a result, pressures have built up on Jordanian enterprises with extensive trade contacts or transport networks with its eastern neighbour.