Jordan: Growth to slow in the second half

Jordan’s y/y GDP growth accelerated to 2.9% in Q2, up from 2.5% in the first quarter. Nevertheless, we are maintaining our forecast for an annual rate of 2.0% with the expectation that there will be a substantial slowdown in the second half as base effects and the global slowdown weigh on output. In 2023 we forecast that growth will remain at similar levels, forecasting 2.1% growth.

Real GDP growth, % y/y

Source: Haver Analytics, Emirates NBD Research

The economy has benefitted from the recovery from the pandemic through the first six months of the year, evidenced by a substantial growth rate in customer facing services. Restaurants and hotels averaged y/y growth of 6.7% over the first two quarters, supported by both domestic and international demand as the tourism sector has picked up. Indeed, tourist arrivals in Jordan numbered 4.9mn over the first eight months of the year, up 140% compared to the corresponding period in 2021. Revenues from tourism rose 161% to USD 3.6bn over the same period. This growth in incoming visitors will likely have also supported the 3.5% growth in wholesale and retail trade GDP in Q2. However, base effects will see this slow down over the second half, given that tourists had already started to return to Jordan through H222, albeit still at levels lower than seen in pre-pandemic H219. As the global slowdown bites, this may also constrain growth in visitor numbers.

Visitor arrivals, '000

Source: Haver Analytics, Emirates NBD Research

Domestic demand will likely also be constrained by similar pressures as seen in the rest of the world. Inflation in Jordan has averaged 3.8% y/y over January to August, compared to an average 0.8% over the three years prior to that. The 5.4% hit in August was the highest level since mid-2018, and while much of this is being driven by food and energy prices, core inflation is also starting to accelerate, rising to 4.6% at the latest print, compared with 1.9% in January. The central bank has significantly tightened policy this year both as it looks to contain domestic price growth and also as it maintains its currency peg to the dollar. In September it hiked by 75bps along with the US Fed and this will further weigh on activity through H2 and into 2023.