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Jordan and the West Bank and Gaza Country Risk Report Q1 2016

  • December 2015
  • -
  • Business Monitor International
  • -
  • 51 pages

Core Views

Jordan's political risk profile remains intrinsically connected to theregion's security outlook. Threats to the country's stability will remainelevated as long as the fighting in Syria and Iraq continues.Domestically, high youth unemployment and the government'suncompromising approach towards the Jordanian Islamist oppositionraise longer-term risks, with this trend exacerbated by the largeinflux of Syrian refugees in the country.We are more positive towards the Jordanian economy than at anypoint since 2010, with lower oil prices and signs of progress on thegovernment's infrastructure investments set to boost economic activitythroughout 2016. We forecast real GDP growth of 3.2% in 2016,compared to an annual average of 2.7% between 2010 and 2013.Jordan's twin deficits – in the budget and current accounts – will narrowover the coming years, to 2.5% and 0.0% of GDP respectively by2019. Lower oil prices, progress towards energy diversification, andgovernment efforts to increase revenue will drive these improvements.Given the very slow progress made by the Iraqi Defence Forces andthe Syrian army in Iraq and Syria against radical jihadist group IS andother opposition movements, the security risks confronting Jordan areset to remain prominent over the coming years.Core Views International recognition of a Palestinian state is gathering momentum, a trend that will continue over the next decade and deepen Israel's diplomatic isolation. However, actual statehood remains a far-off prospect.

The dissolution of the Palestinian unity government in June 2015, followed by President Mahmoud Abbas' resignation from the chairmanship of his political faction in August, point to a growing governance vacuum in the West Bank and Gaza. The risk of a comprehensive collapse of the Palestinian political system is increasing, amidst a stagnating economy and the multitude of challenges confronting the Palestinian leadership. Tensions between the rival Palestinian factions will remain high, preventing the reconstruction of the Gaza Strip and fuelling political instability. The economic outlook for the West Bank and Gaza will remain characterised by lacklustre growth prospects and substantial exposure to elevated political risks over 2016. We forecast overall real GDP growth of 3.6% in 2016, compared to an annualised 5.7% between 2010 and 2014. Israeli-Palestinian peace talks resumed in August 2013, but failed to progress past their April 2014 deadline. We retain our view that despite efforts by US Secretary of State John Kerry, the current political configuration in Israel, combined with the increasing fragmentation of the Palestinian governance system, will hinder any progress in negotiations.

Table Of Contents

Jordan and the West Bank and Gaza Country Risk Report Q1 2016
Executive Summary - Jordan 11
Core Views11
Key Risk11
Chapter 11: Political Outlook - Jordan 13
SWOT Analysis 13
Domestic Politics 14
Security Risks Rising, But Still Relatively Stable14
Jordan will remain at risk of further terrorist attacks over the coming years, given the insecurity prevailing in the region, and Amman's
involvement in neighbouring conflicts Nevertheless, the Kingdom will not be facing large-scale violence, and will continue to be seen as
a relatively safe-haven in MENA
TABLE: POLITICAL OVERVIEW14
Long-Term Political Outlook 15
Further Reforms On The Horizon?15
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 12: Economic Outlook - Jordan 19
SWOT Analysis 19
Economic Growth Outlook 20
Government Spending Spree Temporary Solution20
Jordanian economic growth will moderately accelerate in 2016 , buoyed by a sharp increase in public investment The underlying
economic situation will however remain the same as in 2015, with regional insecurity providing strong headwinds to export growth and
private consumption
GDP By Expenditure Outlook 21
TABLE: GDP GROWTH FORECASTS21
TABLE: PRIVATE CONSUMPTION FORECASTS21
TABLE: GOVERNMENT CONSUMPTION FORECASTS22
TABLE: FIXED INVESTMENT FORECASTS22
TABLE: NET EXPORTS FORECASTS22
External Trade and Investment Outlook 22
Current Account Deficit To Narrow Despite Regional Instability22
Jordan's current account deficit will continue to narrow over the coming quarters, as low oil prices cut the import bill and more than offset
the decrease in exports brought about by regional instability
Fiscal Policy and Public Debt Outlook I 24
Moderate Fiscal Expansion To Boost Economic Growth24
Amman will engage in moderate fiscal expansion in 2016, increasing capital expenditure in a bid to prop up economic activity amid
regional insecurity As a result, Jordan's real GDP growth will accelerate to 32% next year, compared to a disappointing 26% in 2015
Fiscal Policy and Public Debt Outlook II 25
Public Debt Has Reached Its Peak25
Jordan's public debt will gradually decrease from 2016, as the government continues to rein in its fiscal deficit, thereby reducing the
need for borrowing In addition, Amman will increasingly tap international capital markets for its debt issuance, improving liquidity in the
domestic banking sector
Chapter 13: 10-Year Forecast - Jordan 27
The Jordanian Economy To 2024 27
Economic Growth Accelerating Moderately27
An expanding private sector will underpin Jordan's economic progress over our 10-year forecast period Nevertheless, a growing young
population, combined with limited employment opportunities, could pose downside risks to our long-term outlook, especially if progress
in reforming the economy remains subdued
TABLE: LONG-TERM MACROECONOMIC FORECASTS27
Chapter 14: Operational Risk - Jordan 29
SWOT Analysis 29
Executive Summary - West Bank and Gaza 31
Core Views31
Key Risk31
Chapter 21: Political Outlook - West Bank and Gaza 33
SWOT Analysis 33
Domestic Politics 34
Palestinian Attacks: Towards A Third Intifada?34
The violence raging across Israel and the occupied West Bank since October 2015 highlights the growing crisis of legitimacy faced by
the Palestinian Authority and its president Mahmoud Abbas Although not our core scenario, the danger of a third intifada is growing and
constitutes one of the main risks for the broader region over 2016
Long-Term Political Outlook 35
Monumental Obstacles To Statehood35
Over the next decade, the Palestinian territories will continue to face extremely challenging political obstacles, both internally and
externally We remain sceptical about the potential for a negotiated settlement or unilateral declaration of independence to bring peace
and stability
Chapter 22: Economic Outlook - West Bank and Gaza 39
SWOT Analysis 39
Economic Growth Outlook 40
Exposed To Political Uncertainty Over 201640
The economic outlook for the West Bank and Gaza will remain characterised by lacklustre growth prospects and substantial exposure to
elevated political risks over 2016 We forecast overall real GDP growth of 36% in 2016, compared to an annualised 57% between 2010
and 2014
GDP By Expenditure Outlook 41
TABLE: GDP GROWTH FORECASTS41
TABLE: COMPONENTS OF GDP (% OF TOTAL)41
TABLE: GOVERNMENT CONSUMPTION FORECASTS41
TABLE: PRIVATE CONSUMPTION FORECASTS42
TABLE: FIXED INVESTMENT FORECASTS42
TABLE: NET EXPORTS FORECASTS42
Chapter 23: 10-Year Forecast - West Bank and Gaza 43
The West Bank and Gaza Economy To 2024 45
Economic Growth Stabilising45
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 FORECASTS45
Chapter 3: BMI Global Macro Outlook 49
Global Outlook 49
Emerging Markets Bending, Not Breaking49
TABLE: GLOBAL ASSUMPTIONS49
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %50
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 50
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %51

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