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Jordan and the West Bank and Gaza Country Risk Report Q2 2016

  • March 2016
  • -
  • Business Monitor International
  • -
  • 59 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. We are more positive towards the Jordanian economy than at any point since 2010, with lower oil prices and signs of progress on the government's infrastructure investments set to boost economic activity throughout 2016. We forecast real GDP growth of 3.0% 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 narrow over the coming years, to 2.6% and 2.5% 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 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, points 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. Elevated political risks, a continued decline in competitiveness and an overreliance on debt amidst shrinking donor disbursements all present constraints to the Palestinian territories' economic outlook. In our baseline scenario, which assumes no major change to the political situation, growth will reach 3.6% this year, 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 Q2 2016
BMI Index 6
BMI Risk Index - Jordan6
BMI Risk Index - West Bank and Gaza7
BMI Index League Tables9
Executive Summary - Jordan 11
Core Views11
Key Risks 11
Chapter 11: Economic Outlook - Jordan 13
SWOT Analysis 13
Economic Growth Outlook 14
EU Response To Refugee Crisis To Increase Economy's Resilience14
TABLE: SELECTED FTAS AND FTA NEGOTIATIONS14
GDP By Expenditure Outlook 15
TABLE: GDP GROWTH FORECASTS15
TABLE: PRIVATE CONSUMPTION FORECASTS16
TABLE: GOVERNMENT CONSUMPTION FORECASTS 16
TABLE: FIXED INVESTMENT FORECASTS16
TABLE: NET EXPORTS FORECASTS 16
Fiscal Policy And Public Debt Outlook 17
Fiscal Expansion Bodes Well For Power Sector17
Structural Fiscal Position 18
TABLE: CENTRAL GOVERNMENT REVENUES AND EXPENDITURE, 201419
External Trade And Investment Outlook 20
Falling Grants And Aid, Current Deficit Account Narrowing20
Outlook On External Position 21
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE22
Monetary Policy 23
Following The Fed's Monetary Tightening With A Lag23
TABLE: BREAKDOWN OF IMPORTS IN 201423
TABLE: BREAKDOWN OF EXPORTS IN 201423
Monetary Policy Framework 24
Chapter 12: 10-Year Forecast - Jordan 27
The Jordanian Economy To 2025 27
Expanding Private Sector Offers Strong Potential27
TABLE: LONG-TERM MACROECONOMIC FORECASTS27
Chapter 13: Political Outlook - Jordan 29
SWOT Analysis 29
Domestic Politics 30
Refugee Crisis To Impact Stability, Not Fiscal Outlook30
TABLE: POLITICAL OVERVIEW30
Long-Term Political Outlook 32
Further Reforms On The Horizon?32
Chapter 14: Operational Risk - Jordan 35
SWOT Analysis 35
Executive Summary - West Bank and Gaza 37
Core Views37
Key Risks37
Chapter 21: Economic Outlook - West Bank and Gaza 39
SWOT Analysis 39
Economic Growth Outlook 40
Moribund Economic Outlook Amidst Strong Constraints40
GDP By Expenditure Outlook 41
TABLE: GDP GROWTH FORECASTS41
TABLE: COMPONENTS OF GDP (% OF TOTAL)42
TABLE: GOVERNMENT CONSUMPTION FORECASTS42
TABLE: FIXED INVESTMENT FORECASTS42
TABLE: NET EXPORTS FORECASTS42
Chapter 22: 10-Year Forecast - West Bank and Gaza 45
The West Bank and Gaza Economy To 2025 45
Long-Term Growth Outlook Far Below Potential45
TABLE: LONG-TERM MACROECONOMIC FORECASTS45
Chapter 23: Political Outlook - West Bank and Gaza 49
SWOT Analysis 49
Domestic Politics 50
Peace Process Stranded Until At Least 201750
Long-Term Political Outlook 51
Monumental Obstacles To Statehood51
Chapter 3: BMI Global Macro Outlook 55
Global Macro Outlook 55
Tail Risks Mounting Amid Sub-Par Growth55
TABLE: GLOBAL ASSUMPTIONS55
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %56
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, 2015 AND 2016 (%) 56
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %57
TABLE: JORDAN - MACROECONOMIC DATA and FORECASTS59
TABLE: WEST BANK AND GAZA - MACROECONOMIC DATA and FORECASTS 59

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