Doha, March 26th 2014- QNB Group has published its Jordan Economic Insight 2014. The report examines how the Jordanian economy is regaining momentum on improved macroeconomic conditions and a recovery in construction activity, tourism, and lower energy costs.
According to the report, the Real GDP growth is projected to accelerate to 3.6% in 2014 and average 4.4% during 2015-16, driven by private sector led growth. With support from the IMF and GCC grants, higher investor confidence is expected to lead to growth in the construction, a recovery in tourism and higher mining exports, the report added.
Inflation is projected to decline over the medium term as the impact from the liberalization of fuel prices and higher electricity tariffs subsides.
The Syrian conflict has imposed a significant burden on the Jordanian economy, with the loss of trade and tourism, the report explained. Domestically, the labor and housing markets are particularly hampered, with refugees putting downward pressure on wages and upward pressure on rents. The public provision of education and healthcare is strained, and pressure on scarce water resources as well as on municipal services is growing.
Higher taxes and foreign grants should alleviate strains on the fiscal deficit over the medium term: the parliament passed an ambitious 2014 budget aimed at reducing the fiscal deficit to 4.3% of GDP and a new income tax law to be passed later this year will significantly raise taxes. The current-account deficit is expected to narrow over the medium term owing to higher export growth from the mining sector and lower energy imports through a new energy strategy aimed at developing domestic energy sources. The banking sector will continue to grow in line with the economy as NPLs fall in parallel with higher economic growth.
The lower financing needs of the government are likely to keep net interest margins (NIMs) on a declining trend over the medium term; however, the large exposure of commercial banks to the sovereign represents a medium-term risk.
Returns on equity are likely to continue to be moderate as banks reduce their provisioning only gradually over the medium term.
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