Following a poor macroeconomic performance over the first half of the year, the Jordanian economy managed to reverse the trend noticed in some economic sectors, such as trade. However, the Kingdom continued to struggle in terms of the fiscal and monetary sectors as a result of reduced growth expectations and the continued toll of the refugee crisis on the government’s budget.
On the economic front, continued headwinds challenging economic growth resulted in the International Monetary Fund (IMF) revising its growth expectations for Jordan downwards over the next 3 years. Estimates for Real GDP growth for the Hashemite Kingdom for 2016, 2017 and 2018 now stand at 2.75%, 3.25% and 3.75%, respectively. This downgrade in forecasts is defended by the performance of Jordan’s Consumer Price Index (CPI). With a base year of 2010, the index lost 0.77% y-o-y to a level of 115.90 points.
Over the first 9 months of 2016, Jordan witnessed an annual decline in tourism activity. Total arrivals by September 2016 stood at 5.10M, equivalent to a 0.97% y-o-y decline. However, it should be noted that the Kingdom’s tourism industry began the year with a worse performance, as the total number of tourists had stood at a 6.80% annual decrease by Q1 2016. The Ernst & Young Middle East hotel benchmark survey continued to reflect the sector’s challenging environment, as the year-to-date occupancy rate maintained its level of 49% by August 2016, 7 bps less than the level recorded over the same period last year. Despite the 1.30% annual increase in the Average Room Rate (ARR) to $159, the Average Rooms Yield (ARY) dropped to $78 for the period, compared to $88 last year. The contrasting information derived from tourist arrivals and the EY report may indicate that leading hotels operating in 4 and 5-star segments are losing market share to lower-classed hotels as a result of difficult economic conditions witnessed in countries from where tourists are heading to the Kingdom.
In contrast, Jordan’s trade performance began to demonstrate the results of several trade agreements undertaken during the early months of the year. In fact, the Kingdom’s trade balance registered a contraction of the trade deficit by 7.22% y-o-y by July 2016 to a deficit of JOD 4.84B ($6.83B). Jordan’s total imports by July were diminished by 7.26% annually, primarily as a result of a 20.28% drop to JOD 585.93M ($827.33M) in the import of nuclear reactors and related machinery as Jordan began to increase power from alternative sources, in line with the Jordan 2020 plan. Jordan’s trade balance also benefitted from the on-going low oil prices, posting a decrease in value of crude petroleum imports by 54.21% to JOD 288.29M ($407.07M). In contrast, an agreement with the EU to boost cooperation with countries hosting refugees resulted in the increase of the imports of cereals by 60% y-o-y over the first 7 months of 2016 to JOD 370.03M ($522.48M). The decrease in total imports more than offset the 9.35% y-o-y drop in exports from the Hashemite Kingdom by July 2016 to JOD 2.47B ($3.49B). Crude phosphates and potassium registered yearly decreases of 4.15% and 40.91% to JOD 186.82M ($263.79M) and JOD 143.56M ($202.71M), while knitted clothing apparels roughly maintained their level, standing at JOD 536.48M ($757.51M).
In regards to the performance of the fiscal sector, the general budget, inclusive of foreign grants, continued its steep decline over the year, shedding 30.29% y-o-y by the end of June 2016 to record a deficit of JOD 291.2M ($411.17M). The widening of the deficit was largely due to the 18.30% annual decrease in foreign grants to JOD 240.7M ($339.87M). Excluding grants, the deficit increased by a lesser 2.66% to JOD 531.9M ($751.04M). Gross outstanding public debt displayed a similar trend, increasing by 2.10% over H1 2016 to JOD 25.40B ($35.86B), but roughly maintained its Debt-to-GDP level of 93.40%. The increase could be linked to the 3.13% y-t-d rise in gross outstanding domestic public debt to JOD 15.97B ($22.55B).
Jordan’s monetary sector continued to displays signs of a slowdown in activity. Domestic liquidity (M2) registered a 2.20% y-t-d growth by end-July to JOD 32.30B ($45.61M), but had registered a 6.30% increase over the same period in 2015. This could primarily be explained by the slower growth in domestic deposits, which inched up 1.20% y-t-d over the period to JOD 28B ($39.54B), compared to a 6% y-t-d growth by July 2015. Similarly, total deposits at licensed banks increased at a pace of 1.48% y-t-d by July 2016 to JOD 33.08B ($46.71B), compared to a 5.70% y-t-d over the same period in 2015. In contrast, total credit facilities extended by licensed banks picked up pace, rising by 5.50% y-t-d to JOD 22.13B ($31.25B). Resultantly, the Jordanian economy’s loan-to-deposit (LTD) ratio rose by 2.55 percentage points over the first 7 months of the year to 66.91%.
These changes in the Kingdom’s monetary landscape can partially be accredited to changes seen in lending rates across the country. Over the first seven months of 2016, the weighted average interest rate on overdrafts registered a 36 bps decrease to 7.65%, while the weighted average interest rate on loans stood at 8.27% by end-July, compared to 8.24% by end-2015. However, the rate decreased by 11 bps during July, indicating that the trend of low lending costs may remain in the near future.
The Amman Stock Exchange (ASE) managed to partially erase some of the losses endured over the first 6 months of the year, gaining 1.39% over Q3 2016 to end September at a level of 2,120.46 points. However, the index has been characterized by a decreasing trend in the number of traded shares, which decreased by 4.91% compared to Q2 2016, and 38.44% compared to Q1. The quarter also suggested a shift in foreign investors’ position on the exchange, as non-Jordanian investors assumed a net selling position of JOD 21.5M ($30.36M) over the quarter for the first time this year.