Country Report Jordan July 2009

Outlook for 2009-10

• Power in Jordan remains firmly in the hands of the king, Abdullah II, who is expected to retain the loyal support of the army and the security services.
• The cabinet will prioritise economic reform and stability over political liberalisation. However, in the near term the government will focus its efforts on supporting demand in the face of a rapidly weakening economy.
• The government is forecast to return wide fiscal deficits, as tax receipts are depressed by slower economic growth and the fiscal stance remains expansionary. As a result, Jordan will remain heavily reliant on foreign grants.
• We have lowered our inflation forecasts, in line with official data showing that the consumer price index fell in the first four months of 2009 and held steady in May. We now expect average inflation to fall to just 1.7% this year.
• Real GDP growth will slow, as tourism and financial services are hit by the global recession and the property boom comes to an end. As a result, we expect growth to fall from 5.6% in 2008 to an average of just 2.7% in 2009-10.
• Jordan's current-account deficit will narrow sharply, in line with lower global commodity prices (although oil prices have crept higher recently), from an estimated US$2.4bn (12.1% of GDP) in 2008 to around US$1.4bn in 2009-10.

Monthly review

• A speech by the Israeli prime minister, Binyamin Netanyahu, in which he laid out a range of conditions for recognising a Palestinian state, has been condemned in Jordan.
• Parliament and the press have had a major falling out, after MPs chose to reverse a pledge to annul the 5% tax on media advertising revenue. The row followed the publication of a poll showing a low approval rating for MPs.
• In response to the government's deteriorating fiscal position, the government has changed its plans to introduce a fiscal stimulus package in 2009, in favour of implementing a wide-ranging reform of the taxation system.
• According to the latest official data, real GDP growth slowed sharply to 3.2% year on year in the first quarter, pulled lower by contractions in the finance, insurance and real estate sector and the trade, restaurants and hotels sector.
• The current-account deficit narrowed in the first quarter, as the import bill fell sharply and tourism receipts held up surprisingly well, allowing the Central Bank of Jordan to boost its foreign reserves.
• Despite moves by the monetary authorities to boost lending, banks have sought to firm up their balance sheets by boosting their customer deposits and reining in credit.

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52