Economy slowing down amid regional turmoil: The Jordanian economy is reporting a net activity slowdown amid the spillover effects of the regional unrest. Although Jordan does not share the regional political characteristics behind turmoil in MENA countries in general, it does share the tough economic,demographic and social conditions of the countries under turmoil. The IMF has revised the Kingdom's real growth for 2011 to 3.3%, keeping the economy within the range of low economic growth for the third yearin a row after it had reported a streak of high growth of 8% on average between 2003 and 2008.

Real sector indicators reporting mixed performances: Among rising real sector indicators year-to-date,power production was up by 8.1%, merchandise at the Aqaba Port rose by 18.5%, real estate sales surged by 24% and construction permits grew by 28.0%.

On the downside however, cement production fell by 15.1%,the number of tourists dropped by a yearly 5.5% and cleared checks, an indicator of both consumption and investment spending demand, contracted by 4.3% driving a 13.1% drop in velocity of money.

Jordan's foreign trade adversely impacted: The contraction of Jordanian exports to Syria, Egypt, Libya,Tunisia, Yemen and Bahrain that witnessed political and security troubles was offset by a rise in Jordan's exports to Iraq which continues to retain the lion's share of Jordanian exports.

On the import side however, Jordan's import bill is apt to be significantly affected by the rise in oil prices. Beyond the adverse inflationary effects that the 30% surge in oil prices year-to-date holds for the Jordanian economy, such an oil shock raises Jordan's oil import bill by no less than US$ 1 billion on an annual basis.

Adverse spillovers on public finance conditions: As a result of expenditure overshoots tied to social related spending on one hand and oil price surge on the other hand, fiscal accounts are likely to come again under pressure. As a matter of fact, the IMF revised its public deficit ratio forecast to 6.7% of GDP for 2011 from an original 5.3% pre-turmoil. It is on that background that Moody's and Standard and Poor's recently changed their outlook for Jordan from stable to negative.

No fiscal room for expansionary spending policies: As a matter of fact, given than Jordan's fiscal conditions are already weaker than most countries in the region, funding the new increases in current expenditures cannot but be at the expense of capital expenditures, which adversely impacts both the quality of government expenditure, fiscal consolidation efforts and the near term trend of economic growth.

But the Kingdom still enjoys significant buffers: Jordan's economy is luckily buffered by a relatively high international reserve cushion, a track record of committed support from donors, a relatively favorable structure of government indebtedness and a well developed financial system supporting public sector funding needs. Within such a context, the emerging domestic and regional uncertainties translate into economic slowdown with its adverse impact on the real sector much more than worrisome financial and monetary drifts at large.

Source: Bank Audi sal - Audi Saradar GroupGroup Research DepartmentBank Audi Plaza, Bab IdrissRiad El Solh - Beirut - LebanonP.O.Box: 11 - 2560Tel: (01) 994000Fax: (01) 985622e-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.