Jordan Economic Monitor Strength Amidst Strain

Jordan Economic Monitor: Strength Amidst Strain: Jordan’s Economic Resilience (Summer 2024)

Overview

The Jordan Economic Monitor (JEM) provides an update on key economic developments and policies over the past six months, placing them in a longer-term and global context. The report covers a wide range of indicators, from macroeconomics to financial markets and human welfare.

Recent Economic Developments

1. Real Sector and Labor Market

   • Economic activity continued to slow down in the first quarter of 2024.
   • The agriculture sector showed growth acceleration in 2023, coinciding with the recovery of rainfall volumes.
   • Tourist arrivals started showing signs of recovery after reaching a trough in March 2024.

2. Public Finance Developments

   • The fiscal deficit widened on an annual basis in May 2024.
   • Revenues were affected by lower income and profit tax revenue despite higher grants.
   • Expenditure increased mainly due to higher interest payments.
   • Debt increased in 2023, primarily driven by higher foreign currency debt.
   • The SSIF holdings of debt increased, helping tame the increase in the consolidated debt ratio.

3. External Sector Developments

   • The current account deficit widened in the first quarter of 2024, following a narrowing in 2023 to the lowest level since 2019.
   • Imports declined prior to October 2023 due to lower prices, while later declines resulted from lower volumes.
   • Domestic exports declined in 2023, mainly due to lower potassium and phosphate exports.
   • Export volumes through Al-Aqaba port declined significantly between January and May 2024.

4. Monetary Policy and Inflation

   • Annual headline inflation rate accelerated slightly since September 2023.
   • The acceleration was supported by monthly dynamics, with positive contributions from food and fuel items.
   • Real interest rates stabilized after reaching a peak in October 2023.
   • The real effective exchange rate appreciated on an annual basis in April and May 2024.
   • Broad money annual growth rate remained low, with only a modest uptick observed recently.
   • Improved non-reserve foreign assets (NFA) contributed to broad money annual growth rate.

Outlook and Risks

• The report highlights potential risks, particularly the impact of lower travel receipts on the current account deficit (CAD).
• It suggests that the overall and sectoral annual growth rates in Q4-2023 show a relatively limited impact from the current conflict.
• An alternative scenario is presented to assess the economic impact of escalating regional conflict.

Key Data Points

• Tourist Arrivals: Showed signs of recovery after reaching a trough in March 2024.
• Fiscal Deficit: Widened on an annual basis in May 2024.
• Debt: Increased in 2023, mainly due to higher foreign currency debt.
• Current Account Deficit: Widened in Q1-2024.
• Inflation: Accelerated slightly since September 2023, supported by positive contributions from food and fuel items.
• Broad Money Growth: Remained low, with a modest uptick observed recently.

Conclusion

The Jordan Economic Monitor underscores Jordan's resilience amid ongoing challenges, highlighting areas where the economy is performing well and areas needing attention. The report provides valuable insights for policymakers, business leaders, financial market participants, and analysts engaged in Jordan.