Jordan, Lebanon and Syria Business Forecast Report Q3 2009

Jordan, Lebanon and Syria Business Forecast Report Q3 2009

As we move towards the second half of what has been a turbulent year economically, things seem
to be calming down on a number of levels. The Lebanese elections have subtly changed the outlook
for the whole region as well: the results were as favourable as they could have been, within
the narrow framework of the electoral system, in terms of investor perceptions and the likelihood
of gradually reduced political risk in the Middle East. However, a number of challenges remain for
all three of our states, and we are not convinced that there will not be a second wave of economic
problems worldwide.
Jordan’s economy should continue to grow in 2009 and 2010, but not by much. Thereafter, growth
will pick up as the global economy recovers, but we do not see a return to the expansion rates of the
previous five years within the timeframe of our forecast period. Unemployment will likely rise, but
social and political stability should be maintained and the government’s fiscal stimulus measures
will somewhat cushion the blow of a drop off in economic activity. However, this will contribute to
a record fiscal deficit in 2009. Though shortfalls will fall over future years, total public debt levels
are set to rise, though not unsustainably so. With consumer price inflation showing negative annual
growth in March and April, the central bank has scope for further monetary easing, especially as
total bank lending continues to contract.
The outlook for Lebanon is distinctly improved since the surprise retention of power by the ruling
March 14 coalition, which will ensure that donor aid and diplomatic support from the West and Saudi
Arabia remain in place. Of course, Lebanon still faces huge economic challenges over the next
few years: job creation, paying down the huge national debt and reining in the trade and budget
deficits will all be on the new government’s to-do list. In addition, Hizbullah is going nowhere, and
continues to pose a threat to the government’s authority, particularly in the south. However, things
are certainly looking up.
On the back of a higher oil price forecast, our core scenario is now for Syria to narrowly avoid
recession in 2009, although with real GDP growth set to come in at a paltry 0.3%, Syrians will
certainly sense the slowdown. The poor economic outlook, coupled with dwindling oil reserves,
supports our long-held view that Syria will be forced to reach some sort of accommodation with the
US and Israel. Contacts with the former have been intensifying and at the time of writing, Barack
Obama’s special envoy to the Middle East, George Mitchell, was preparing to make his first visit
to Damascus. Based on the assumption of improved ties with the West, which will support trade
and investment, we are forecasting a relatively robust economic recovery from 2010 onwards.

BMI Ratings
BMI Risk Ratings – Jordan.........7
BMI Risk Ratings – Lebanon......8
BMI Risk Ratings – Syria9
Middle East – Ratings League Tables.........11
Executive Summary.13
More Political Progress Ahead... But Economic Woes Remain
Chapter 1.1: Political Outlook - Jordan.... 14
SWOT Analysis... 14
Domestic Politics.....15
Stable Polity Despite Slowdown
We expect Jordan to remain broadly stable, and although unemployment is likely to tick up as the domestic
economy slows, the government’s fiscal stimulus should provide of a cushion to some extent.
Table: Jordan Political Overview 16
Chapter 1.2: Economic Outlook - Jordan. 19
SWOT Analysis .. 19
Economic Activity....20
Still Growing, But Not By Much
Although we do not see the Jordanian economy experiencing a full-year economic contraction, growth will fall to
its lowest level since 1996 this year, and 2010 will only see a modest recovery.
table: ECONOMIC ACTIVITY.... 20
Chapter 1.3: Business Environment - Jordan...... 23
SWOT Analysis .. 23
Chapter 2.1: Political Outlook - Lebanon 23
SWOT Analysis .. 23
Domestic Politics.....25
Election Results: Key Implications
The victory for the March 14 coalition is positive for stability region-wide, but domestic policymaking will
continue to be hampered by the divided parliament and ongoing grievances of the under-represented
Shi’a community.
Table: Lebanon Political Overview......... 26
Chapter 2.2: Economic Outlook - Lebanon......... 29
SWOT Analysis .. 29
Election To Boost Domestic, Not External, Momentum
The election result is very positive for the economic outlook, but the government needs to implement reforms to
create long-term sustainable growth, and political risks remain.
table: LEBANON – ECONOMIC ACTIVITY.........31
Chapter 2.3: Business Environment - Lebanon... 33
SWOT Analysis .. 33
Chapter 3.1: Political Outlook - Syria...... 33
SWOT Analysis .. 33
Domestic Politics.....35
Nuclear Discoveries Threaten To Spoil Diplomatic Gains
Despite the overwhelming sense that relations between Syria and the West are moving forward, ongoing
investigations into its alleged nuclear programme will raise some concerns.
Table: Syria Political Overview.... 36
Chapter 3.2: Economic Outlook - Syria... 39
SWOT Analysis .. 39
Economic Activity....40
Positive Growth, But Big Current Account Deficit
Syria should narrowly avoid a full year GDP contraction after all, although negative developments later in the
year could push our 0.4% growth forecast back into negative territory.
TABLE: SYRIA – ECONOMIC ACTIVITY.. 40
Chapter 3.3: Business Environment - Syria......... 44
SWOT Analysis .. 44
Chapter 4: Special Report. 45
The Outlook For Global Banking......45
TABLE: LOAN -TO-DEPOSIT RATIOS, Selected States... 45
TABLE: LOAN GRO WTH (% CHG Y-O-Y), Selected States.......... 46
TABLE: COMMERCIAL BANKING BUSINESS ENVIRON MENT RATINGS, SELECTED STATES 48
Business Environment Rating Outlook.......48
Chapter 5: BMI Global Assumptions........ 53
Global Assumptions.53
TABLE: GLOBAL ASSUMPTIONS........... 53
TABLE: GLOBAL & REGIONAL REAL GDP GRO WTH..... 54
TABLE: COMMODITIES.. 55