After almost six years of stagnation, the global economic outlook for 2017 still looks uncertain. It doesn’t look like we are at the end of the bottle neck. There are several reasons for this, but three stick out for me. Firstly, the vague economic intentions of the next administration in the United States, the world’s largest economy, especially in its plans related to international trade. Secondly, the uncertainty surrounding Brexit and whether it will lead to the further fragmentation of the EU. Thirdly, the low price of oil.
Global growth for 2017 was revised down by the IMF outlook to around 3.4 percent. As far as the emerging markets and developing economies are concerned, the situation is slightly better with an expected growth rate of over 4 percent. However, this is still much below the prolonged average these countries witnessed before the economic crisis of 2008. In the same respect, the Economic Intelligence Unit estimates global growth for 2017 will be a little below 3 percent.
To this end, the economic outlook for Jordan is not much different than the global one. Jordan has always been a small, open economy. This means it will always be vulnerable to shocks in the region and further afield. However, it looks like the coming US administration backs President Obama’s decision to boost annual aid to the Kingdom to $1 billion from $600 million. Actually, for many political and social reasons, I think President Trump will give even more.
As for the price of oil, Jordan, which still imports most of its fuel, could benefit if it stabilizes below $55 a barrel. But this could then be negated by less financial assistance arriving from the GCC.
The World Bank estimates Jordan’s economy will grow over 3 percent over the coming two years. Our government broadly agrees. But the Economist Intelligence Unit thinks real growth will only be around 2.5 percent this year. In any case, a genuine analysis of the components of the GDP is needed if we’re to hit upon a more rational outlook of the Jordanian economy.
Furthermore, the rate of growth will mainly be determined by levels of private and public consumption, the state of the trade balance, and fixed capital formation or investment. It definitely looks like growth in consumption isn’t going to be much better than last year, and at the same time it looks like the trade balance isn’t going to differ from the trend over the last couple of years. This means the only component that could achieve better growth is investment. Without a real breakthrough in attracting greater FDI, the growth rate will not reach the 3 percent threshold. Government expenditures therefore need to be directed more to capital formation in infrastructure projects. This is doable if the country moves fast to implement the projects planned by the new Saudi-Jordan investment fund and if the government works closely with the private sector as partners in running the economy. We will therefore need to see many more PPP projects in 2017.