Jordan outlook

We hold to our expectation that the Jordanian economy will return to growth this year, but we have adjusted our projections downward owing to persistent challenges both domestically and internationally which will likely exert a drag on output through the first half at least. We now forecast real GDP growth of 2.2%, compared to our previous more bullish estimation of 3.0%. This follows a contraction of -1.5% in 2020, which was a relatively resilient performance when compared to both regional peers and most economies globally.

A return to growth

While first quarter GDP figures are not yet available, the fourth quarter showed a renewed deterioration in Jordan’s economic conditions, with a -1.7% q/q contraction, following two previous quarters of growth (having been a fairly early country to be hit by the coronavirus pandemic, Jordan saw a substantial -10.1% q/q contraction in Q1 2020). Some four months in to 2021 and the outlook at present remains weak given the persistence of the Covid-19 pandemic. While daily new cases have been subsiding since March they hit new record levels that month, and this will have weighed on economic activity. Google mobility data for Jordan continues to show a substantial drop in footfall at workplaces (down -25% from the baseline in the week to April 7) and transit stations (-46%), while retail and recreation footfall was still down -13%. Meanwhile there has been growing public discontent over the handling of the crisis and its economic fallout which has led to a number of street protests in recent months.

Real GDP growth, % y/y

Source: Haver Analytics, Emirates NBD Research

What timely data there is from Jordan since the start of the year indicates that the first quarter remained weak, with industrial production averaging a y/y contraction of -10.8% over January and February – the average over 2020 was -12.4% y/y. These figures should start to improve from March as the pandemic effect begins to come into the base, but compared to pre-pandemic levels at least, industrial production will remain down for the time being. Meanwhile, the tourism sector will also remain under pressure through the next several months until there has been greater progress on curbing the disease, both in Jordan and in key visitor source markets. The third wave in European countries such as France, Italy and Germany since the start of the year, and the accompanying strengthening in restrictions, poses a risk to any recovery in Jordan’s tourism sector. This has significant implications for unemployment, which has already risen to a series high of 24.7% and will both weigh on private consumption and pose a risk of further protests as discontent rises.

Twin deficits will remain substantial

The collapse in the tourism industry last year pushed Jordan’s current account deficit to equivalent to -8.0% of GDP, compared to just -2.1% the previous year. Even this somewhat obscures the scale of the collapse in exports – both goods and services – given that goods imports also saw a substantial decline, falling -11.3%. Services exports fell -69.2% last year, driven largely by a -75.7% fall in travel receipts. Our expectation is that a gradual recovery in the tourism sector in the second half of the year should prompt a sharp rebound in travel receipts compared to last year. Nevertheless, they will remain depressed compared to previous levels, and we forecast that the current account deficit will remain substantial at -6.2% in 2021. Meanwhile, although full-year 2021 budget figures are not yet available, we estimate a deficit of -7.0% last year, which we forecast will narrow modestly to -6.7% this year.

Current account & fiscal balances, % GDP

Source: Haver Emirates NBD Research

Jordan enjoys substantial international support, not least from the IMF which asserted that Jordan’s economic reform programme remained firmly on track when conducting the second review of its Extended Fund Facility programme at the end of March. While acknowledging the outstanding and severe challenges from the pandemic, the Fund was broadly positive on Jordan’s prospects this year. The IMF also extended further support in the form of granting Jordan’s request to boost the EFF by USD 200mn.