Jordan, Lebanon and Syria Business Forecast Report

Economies Recovering, But Political Progress To Disappoint As we near the end of 2009, early enthusiasm over US President Barack Obama's efforts to bring stability to the Middle East is waning. Syria is not playing ball and three months after the elections, Lebanon still does not have a government. Meanwhile, with economic prospects improving across the globe, countries like Syria and Iran are not on the back foot to the same degree that they were this time last year. We therefore foresee turbulent times ahead, with Jordan remaining broadly stable (albeit facing the challenges of high unemployment and ongoing underlying sympathies for radical Islamism).

Jordan will pass through the bottom of its economic cycle in 2009, before embarking on a weak recovery from 2010 onwards. We expect real GDP growth over the next five years to be considerably slower than in the previous five. The Jordanian consumer has retrenched this year, and we look to 2010 before private consumption growth begins to pick up again. Instead, growth this year has been driven by the government's investment-based fiscal stimulus. As a consequence, Amman's budget deficit will reach record levels in 2009. On a positive note, the industrial sector looks to be on the road to recovery and banks are tentatively expanding their loan books once again. Political stability is our core scenario over the next five years. However, social stability could be impacted by high youth unemployment rates.

For Lebanon, the failure to form a government is affecting both political and economic stability.

However, with the downturn in US-Syrian relations, after a promising start, we do not expect the situation to be resolved any time soon. Even if the opposition has to concede on some of its objectives, it will still play a very strong role in Lebanon's new government, potentially blocking key legislation. On the economic front, Lebanon is ticking along, but the key reforms required to induce sustainable growth and large-scale FDI inflows still depend on a political solution. We expect the country to 'muddle through' for the next couple of years.

Syrian relations with Iraq have taken a turn for the worse recently, following Baghdad's accusation of Syrian complicity in recent bomb attacks. The incident may have involved a certain amount of political posturing by Nouri al-Maliki's government as it gears up for Iraqi elections, and we believe that neighbourly relations can get back on track fairly soon. There are certainly economic incentives to do so from Syria's point of view, as it could become an important transit partner for the Iraqi oil industry. Output by Syria's own oil sector continues to dwindle, although recent discoveries have the potential to boost its reserves.