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Jordan and the West Bank and Gaza Country Risk Report Q4 2016

  • September 2016
  • -
  • Business Monitor International
  • -
  • 53 pages

Core Views

Jordan’s political risk profile remains intrinsically connected to the region’s security outlook. Threats to the country’s stability will remain elevated as long as the fighting in Syria and Iraq continues. Domestically, high youth unemployment and the government’s uncompromising approach towards the Jordanian Islamist opposition raise longer-term risks, with this trend exacerbated by the large influx of Syrian refugees in the country. The reopening of the Iraqi border will benefit Jordanian exporters and support economic growth. Jordan’s twin deficits – in the budget and current accounts – will narrow over the coming years, to 3.0% and -7.4% of GDP respectively in 2018. The EU offering an enhanced trade agreement, lower oil prices, progress towards energy diversification, and government efforts to increase revenues will drive these improvements. Given the very slow progress made by the Iraqi Defence Forces and the Syrian army in Iraq and Syria against radical jihadist group Islamic State (IS) and other opposition movements, the security risks confronting Jordan are set to remain prominent over the coming years.Core Views

International recognition of a Palestinian state is gradually gathering momentum, a trend that will continue over the next decade. However, actual statehood remains a far-off prospect. Palestinian leadership is divided and increasingly lacking in popular legitimacy – meaning the risk of a comprehensive collapse of the political system is rising, amid a stagnating economy, uncertainty over President Mahmoud Abbas’ successor and the long-standing rift with Islamist rival group Hamas. Tensions between the various Palestinian factions will remain high, preventing reconstruction of the Gaza Strip and fuelling instability. Israeli restrictions on the movement of Palestinian goods, people and money continue to hamper economic growth in the West Bank and Gaza, amid limited progress in the peace process. Lower aid inflows negatively impact the PA’s fiscal position, restricting muchneeded public investment into infrastructure. Overall, economic growth is forecast at 2.5% and 3.0% in 2016 and 2017, respectively, will be insufficient to substantially reduce unemployment across the Palestinian territories. We retain our view that despite recent efforts by France, Egypt, and most recently, Russia, the current political configuration in Israel – combined with the increasing fragmentation of Palestinian governance – will hinder any real progress in peace negotiations.

Table Of Contents

Jordan and the West Bank and Gaza Country Risk Report Q4 2016
BMI Index.................................................................................................................................................... 6
BMI Risk Index - Jordan.................................................................................................................................................................6
BMI Risk Index - West Bank And Gaza.........................................................................................................................................7
BMI Index League Tables...............................................................................................................................................................9
Executive Summary - Jordan................................................................................................................ 11
Core Views.....................................................................................................................................................................................11
Key Risk.........................................................................................................................................................................................11
Chapter 1.1: Economic Outlook - Jordan............................................................................................. 13
SWOT Analysis......................................................................................................................................................... 13
Economic Growth Outlook...................................................................................................................................... 14
Economic Growth To Accelerate On Export Recovery.............................................................................................................14
A recovery in exports will support economic expansion in Jordan over the coming quarters.
GDP By Expenditure Outlook.................................................................................................................................. 15
TABLE: GDP GROWTH FORECASTS....................................................................................................................................................................15
TABLE: PRIVATE CONSUMPTION FORECASTS..................................................................................................................................................15
TABLE: GOVERNMENT CONSUMPTION FORECASTS.......................................................................................................................................15
TABLE: FIXED INVESTMENT FORECASTS..........................................................................................................................................................16
TABLE: NET EXPORTS FORECASTS....................................................................................................................................................................16
Fiscal Policy And Public Debt Outlook.................................................................................................................. 16
IMF Deal A Net Positive For Jordan.............................................................................................................................................16
The signing of a USD700mn Extended Fund Facility (EFF) programme between Jordan and the IMF is a clear positive for the country's
macroeconomic stability.
TABLE: IMF EXTENDED FUND FACILITY (EFF) PROGRAMME REQUIREMENTS............................................................................................ 17
TABLE: GOVERNMENT JUNE AUSTERITY MEASURES......................................................................................................................................17
Structural Fiscal Position ....................................................................................................................................... 17
TABLE: CENTRAL GOVERNMENT REVENUES AND EXPENDITURE, 2014......................................................................................................18
TABLE: FISCAL AND PUBLIC DEBT FORECASTS...............................................................................................................................................18
External Trade And Investment Outlook................................................................................................................ 19
External Balance Will Remain Precarious Despite C/A Improvements....................................................................................19
Jordan's current account deficit will gradually narrow over the coming quarters as the reopening of the trade route with Iraq and the
implementation of the Jordan Compact boost goods exports.
Outlook On External Position.................................................................................................................................. 20
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE.........................................................................................................................................20
TABLE: BREAKDOWN OF IMPORTS IN 2014.......................................................................................................................................................21
TABLE: BREAKDOWN OF EXPORTS IN 2014.......................................................................................................................................................21
Chapter 1.2: 10-Year Forecast - Jordan................................................................................................ 23
The Jordanian Economy To 2025........................................................................................................................... 23
Expanding Private Sector Offers Strong Potential....................................................................................................................23
A n expanding private sector will underpin Jordan's economic progress over our 10-year forecast period.
TABLE: LONG-TERM MACROECONOMIC FORECASTS ....................................................................................................................................23
Chapter 1.3: Political Outlook - Jordan................................................................................................ 25
SWOT Analysis......................................................................................................................................................... 25
Domestic Politics..................................................................................................................................................... 26
IS's Retreat A Major Positive, But No Panacea..........................................................................................................................26
The retreating of Islamic State is a major positive for Jordan's political stability.
TABLE: POLITICAL OVERVIEW.............................................................................................................................................................................26
TABLE: SELECTED SECURITY THREATS AND TERROR ATTACKS IN JORDAN............................................................................................. 27
Long-Term Political Outlook................................................................................................................................... 27
Further Reforms On The Horizon?..............................................................................................................................................27
Following a series of political and economic reforms by the government in the recent years, we maintain that Jordan's long-term political
outlook is among the most stable in the region.
Chapter 1.4: Operational Risk - Jordan................................................................................................ 29
SWOT Analysis......................................................................................................................................................... 29
Executive Summary - West Bank and Gaza ............................................................................................ 33
Core Views.....................................................................................................................................................................................33
Key Risks.......................................................................................................................................................................................33
Chapter 2.1: Economic Outlook - West Bank and Gaza......................................................................... 35
SWOT Analysis......................................................................................................................................................... 35
GDP By Expenditure Outlook.................................................................................................................................. 36
Numerous Constraints To Stifle Growth.....................................................................................................................................36
Israeli restrictions on the movement of Palestinian goods, people and money will continue to hamper economic growth in the West Bank
and Gaza over coming years, amid limited progress in the peace process.
TABLE: GDP GROWTH FORECASTS....................................................................................................................................................................36
Chapter 2.2: 10-Year Forecast - West Bank and Gaza............................................................................ 39
The Jordanian Economy To 2025........................................................................................................................... 39
Long-Term Growth Outlook Far Below Potential.......................................................................................................................39
We forecast steady, moderate real GDP growth in the West Bank and Gaza based on our assumption that Israeli restrictions on the
movement of goods and people into and out of the territories will not change significantly over our 10-year forecast period.
TABLE: LONG-TERM MACROECONOMIC FORECASTS.....................................................................................................................................39
Chapter 2.3: Political Outlook - West Bank and Gaza............................................................................. 43
SWOT Analysis......................................................................................................................................................... 43
Domestic Politics..................................................................................................................................................... 44
National Reconciliation To Remain Elusive................................................................................................................................44
Municipal elections - if held - are unlikely to result in any meaningful progress towards resolving the Palestinian territories' political
stalemate.
Long-Term Political Outlook................................................................................................................................... 45
Monumental Obstacles To Statehood.........................................................................................................................................45
Over the next decade, the Palestinian territories will continue to face extremely challenging political obstacles, both internally and
externally.
Chapter 3: BMI Global Macro Outlook................................................................................................... 49
Global Macro Outlook.............................................................................................................................................. 49
EMs Past The Worst, But Structural Problems Persist.............................................................................................................49
TABLE: GLOBAL ASSUMPTIONS..........................................................................................................................................................................49
TABLE: DEVELOPED STATES - REAL GDP GROWTH, %..................................................................................................................................50
TABLE: EMERGING MARKETS - REAL GDP GROWTH, %.................................................................................................................................51
TABLE: JORDAN - MACROECONOMIC DATA and FORECASTS...........................................................................................................................53
TABLE: WEST BANK AND GAZA - MACROECONOMIC DATA and FORECASTS................................................................................................. 53

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