Jordan GDP growth forecasts raised on domestic demand

• Kingdom’s GDP growth expected to hit 2.8%, up from last year’s 2.5%
• IMF reaches agreement on sixth review of economic reform programme
• Manufacturing, mining and retail among sectors contributing to rise

Real GDP growth forecasts for Jordan have been raised after sectors including manufacturing, finance, transport and retail performed stronger than expected in the first quarter of the year.

Analysts at BMI (formerly Fitch) expect Jordan’s real GDP growth to hit 2.8 percent – up from a previous forecast of 2.6 percent. Growth stood at 2.5 percent in 2022.

The revision follows an announcement by the International Monetary Fund that it had reached agreement on the sixth review of Jordan’s economic reform programme. 

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Supported by its extended fund facility, the IMF has made disbursements worth around $1.8 billion to the country since 2020. 

It added that Jordan needs to accelerate structural economic reforms to push growth beyond the average 2-3 percent it has recorded in recent years, in order to generate more jobs and reduce its high unemployment.

Unemployment remains above 20 percent but it is falling. A larger workforce could support spending both on domestic and foreign goods. In Q4 last year, unemployment fell to 21.9 percent – the lowest level since early 2020 – and BMI believes it will continue to fall to an average of 21.7 percent in 2023.

Manufacturing, finance, transport and wholesale and retail trade contributed most to the Q1 GDP growth.

The retail sector grew by 3 percent compared to Q1 2022, above the 2.5 percent Q1 average between 2010 and 2019. 

“This likely implies robust domestic demand, a trend we think will continue,” analysts said in a research note.

BMI said remittance growth was also likely to remain strong, in line with robust performance in GCC countries’ non-oil economies, which host the lion’s share of Jordan’s expat population. 

Domestic demand is expected to benefit from a sustained easing of inflation in the second half of this year. After peaking at 4.2 percent year-on-year in February, analysts said they expect a downward trend over the remainder of 2023. 

BMI said it also holds a brighter view on real export growth, which will accelerate this year compared to last year. 

“Year-to-date monthly mining production data, including fertiliser potassium (potash), surprised us to the upside as potash production volumes grew by an average of 7.8 percent in the first five months of 2023. At the moment, we see no reason to assume a slowdown in this steady production growth,” it said.

Almost all of Jordan’s potash goes into the production of chemical fertilisers, which are then sold abroad. 

BMI also said investment could provide a stronger contribution to total real GDP growth, largely supported by the construction industry which grew by 5.9 percent and is expected to “remain above trend”.

BMI said a faster easing in global commodity prices could lead to a sharper fall in headline inflation, which would in turn boost consumer confidence and further support private consumption growth. 

Analysts warned that slower growth in the US – potentially as a result of a more hawkish monetary policy if inflation remains stickier to the upside – would likely reduce demand for Jordanian textiles exports, dampening growth overall.