Jordanian GDP growth will strengthen next year

Jordan’s success in containing the Covid-19 outbreak in early 2020 – as one of the first countries in the region to implement lockdown measures, the virus’ initial spread was relatively minor – saw the country’s GDP contraction in 2020 limited to -1.6% according to the IMF, beating the Fund’s earlier projection of -3.0%. However, a more severe wave of the virus in Q4 2020 weighed on the economy through the end of last year, and an even larger wave that began in March has likewise prevented a more robust recovery in 2021. We estimate that real GDP will have grown 2.2% this year, but as domestic and international conditions continue to improve, we project that this will strengthen to 3.2%in 2022.

Real GDP growth, % y/y

Source: Haver AnalytEmirates NBD Research

The daily case load has been more sedate in recent months, and with a steady uptick in the vaccination rate – over a third of adults have now received two doses of a vaccine – the authorities have been able to relax restrictions on activity in July and September, boding well for an uptick in consumption levels. On September 1, the partial curfew that had been in place was lifted entirely, while businesses were allowed to operate with 100% capacity once more. The restaurants & hotels component of GDP contracted -8.2% last year and remained under pressure in Q1 (-7.3% y/y), but as base effects came into play and some restrictions started to be eased this rebounded to 6.3% in Q2, contributing to headline GDP growth of 3.2% y/y in Q2, from 0.3% in Q1. Additionally. while the recovery in the tourism sector has been slower than might have been hoped at the start of the year given the effect of the Delta variant on international travel, we anticipate that this should continue to improve, providing a fillip to growth in 2022 especially.

Twin deficits, % GDP

Source: Bloomberg, Emirates NBD Research

Another positive development is the reopening of the Jaber border crossing with Syria at the end of September, potentially paving the way for an uptick in cross-border transit activity. Transport, storage & communication usually makes up around 8% of output but has been weighed down in recent quarters by the drop in movement engendered by the pandemic crisis, and specifically by the closure of this crossing. The route has been closed intermittently for much of the past six years and was closed once again in the middle of this year but easing pandemic pressures alongside ongoing regional détente should see an uptick in transit trade over 2022.

On the output side, industrial production data points towards a fairly robust improvement this year, having averaged y/y growth of 92.9% over the eight months from January to August. This was boosted by the base effect-driven sevenfold growth seen in April, given the almost total closure of the Jordanian economy in April 2020, and these base effects have naturally moderated since. Nevertheless, at 9.1% in August growth remains robust. Manufacturing accounts for around 17% of GDP and expanded 3.9% y/y in Q2. The creation of a new investment ministry in October could bring more capital into the manufacturing sector which would help boost employment levels, leaving the jobs market less dependent on the tourism sector and the potential ebbs and flows thereof. Unemployment has hit 25%, with potentially negative implications for consumption and stability.