Fitch - Jordan - Outlook & Risks

Q4 2023
www.fitchsolutions.com/bmi
Jordan and the West

Bank & Gaza
Country Risk Report
Includes 10-year forecasts to 2032
Jordan and the West Bank & Gaza Country Risk Report | Q4 2023
Contents
Executive Summary...................................................................................................................................................................... 5
Key View ..................................................................................................................................................................................................................5
Risk Summary.........................................................................................................................................................................................................6
Economic SWOT ......................................................................................................................................................................................................7
Political SWOT .........................................................................................................................................................................................................8
Economic Outlook......................................................................................................................................................................... 9
Stronger Private Consumption And Real Export Growth Will Boost Jordanian Growth In 2023 .................................................................9
GDP By Expenditure Outlook ............................................................................................................................................................................. 12
External Trade And Investment Outlook .............................................................................................................................14
Jordan Outlook On External Position ............................................................................................................................................................... 14
Monetary Policy Outlook...........................................................................................................................................................17
Jordan's Inflation Will Remain Subdued Through 2024 ................................................................................................................................. 17
Monetary Policy Framework .............................................................................................................................................................................. 21
Fiscal Policy And Public Debt Outlook..................................................................................................................................23
Structural Fiscal Position ................................................................................................................................................................................... 23
10-Year Forecasts.........................................................................................................................................................................26
Expanding Private Sector Offers Potential ..................................................................................................................................................... 26
Political Outlook...........................................................................................................................................................................29
Broad Political Stability Ahead In Jordan, Despite Elevated Risks .............................................................................................................. 29
Long-Term Political Outlook ....................................................................................................................................................32
Lingering Risk Of A Resurgence In Social Discontent Poses Threat To Long-Term Stability................................................................... 32
Macroeconomic Forecasts........................................................................................................................................................34
Executive Summary....................................................................................................................................................................36
Key View ............................................................................................................................................................................................................... 36
Risk Summary...................................................................................................................................................................................................... 37
Economic SWOT ................................................................................................................................................................................................... 38
Political SWOT ...................................................................................................................................................................................................... 39
Economic Outlook.......................................................................................................................................................................40
Resilient Israeli Demand Will Support Growth In The West Bank And Gaza In H223 ................................................................................. 40
Monetary Policy Outlook...........................................................................................................................................................44
West Bank and Gaza's Inflation Will Remain Elevated In H223, Return To Trend In 2024 ......................................................................... 44
Fiscal Policy And Public Debt Outlook..................................................................................................................................48
West Bank And Gaza Will Keep Accumulating Arrears To Cover Wider Fiscal Deficits In 2023 And 2024 .............................................. 48
10-Year Forecasts.........................................................................................................................................................................53
Long-Term Growth Outlook Far Below Potential ............................................................................................................................................ 53
© 2023 Fitch Solutions Group Limited. All rights reserved.
All information, analysis, forecasts and data provided by Fitch Solutions Group Limited are for the exclusive use of subscribing persons or organisations (including those
using the service on a trial basis). All such content is copyrighted in the name of Fitch Solutions Group Limited and as such no part of this content may be reproduced,
repackaged, copied or redistributed without the express consent of Fitch Solutions Group Limited.
All content, including forecasts, analysis and opinion, is based on information and sources believed to be accurate and reliable at the time of publishing. Fitch Solutions
Group Limited makes no representation or warranty of any kind as to the accuracy or completeness of any information provided, and accepts no liability whatsoever for
any loss or damage resulting from opinion, errors, inaccuracies or omissions affecting any part of the content.
This report from BMI – A Fitch Solutions Company is a product of Fitch Solutions Group Limited; UK Company registration number 08789939 ('FSG'). FSG is an affiliate of
Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.
Copyright © 2023 Fitch Solutions Group Limited.
This commentary is published by BMI – A Fitch Solutions Company, and is not a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely derived from BMI and independent
sources. Fitch Ratings analysts do not share data or information with BMI.
fitchsolutions.com/bmi 3
Political Outlook...........................................................................................................................................................................58
West Bank And Gaza Unlikely To See Full Fatah-Hamas Reconciliation, Unity Government ................................................................... 58
Long-Term Political Outlook ....................................................................................................................................................62
Political Environment Will Remain Unstable Amid Plethora Of Challenges .............................................................................................. 62
Global Macro Outlook .................................................................................................................................................................65
Recession Delayed, But Inflation To Prove Sticky .......................................................................................................................................... 65
Index Tables ...................................................................................................................................................................................81
Macroeconomic Forecasts........................................................................................................................................................85
Indices - Brief Methodology .....................................................................................................................................................87
Executive Summary
Key View
Core Views
• Stronger than expected Q123 GDP prompted us to raise our 2023 growth forecast for Jordan from 2.6% to 2.8%. This will make Jordan one of
few Middle East ANd North Africa countries to see faster growth than in 2022. Strong investment activity, easing inflation and robust exports
will all support economic activity in H223.
• In 2024, we expect broadly stable economic growth of 2.7% as the aforementioned factors will continue to play out, aided by monetary policy
easing in H224.
• We expect that inflation will remain subdued through H223, despite a tick-up in Q423 due to seasonal effects. Indeed, after averaging 2.5% y-o-
y in the first eight months of 2023, we forecast that inflation will average just 1.1% in the last four months of the year due to tight monetary
conditions, lower year-on-year commodity prices and favourable base effects.
• In 2024, inflation will average 2.0%, nearly unchanged from 2023, due to favourable base effects from H123, before normalising in H224. We
believe that the Central Bank of Jordan’s tightening cycle has ended and that it will hold the main rate at 7.50% until mid-2024, before cutting it
to 5.75% by end-2024.
• Meanwhile, we forecast Jordan’s central government budget deficit at 4.6% of GDP in 2023, unchanged from 2022. This is because we think
that a slight rise in revenues will offset an uptick in current spending, in particular towards the military.
• We also expect that the current account deficit will narrow from 8.7% of GDP in 2022 to 5.8% of GDP in 2023, largely due to a fall in goods
imports, higher remittance inflation and more substantial transfer payments from the US.
Key Risks
• Risks to our economic outlooks are mostly related to global commodity prices.
• On the one hand, we highlight upside risks that easing global energy and cereals prices could lead to a sharper fall in headline inflation.
• This, in turn, would likely boost consumer confidence more substantially than incorporated into our core view, boosting household spending
and thus real GDP growth.
• On the other hand, a potential rally in global fertilizer prices due to escalations to the Russia-Ukraine war (not our core view) could boost
Jordanian nominal fertilizer exports, further narrowing the current account deficit.
• Similarly, higher commodity prices than we currently expects could reignite inflationary pressures and increase the import and subsidy bills.
MACROECONOMIC FORECASTS (JORDAN 2021-2024)

Indicator 2021 2022e 2023f 2024f
Nominal GDP, USDbn 45.1 47.4 50.3 54.2
Real GDP growth, % y-o-y 2.2 2.5 2.8 2.7
Consumer price inflation, % y-o-y, eop 2.4 5.3 1.5 2.4
Exchange rate JOD per USD, eop 0.71 0.71 0.71 0.71
Budget balance, % of GDP -5.4 -4.6 -4.6 -3.5
Current account balance, % of GDP -8.2 -8.7 -5.9 -3.4
e/f = BMI estimate/forecast. Source: National sources, BMI
Risk Summary
Economic Risk
Jordan's macroeconomic outlook remains heavily dependent on its export sector and external grants, meaning that the country will remain
exposed to swings in the region's geopolitical environment. Regional instability, stirred up by conflicts in Iraq and Syria, has had a detrimental
impact on the Jordanian economy, which preserves a weak fiscal and external position. Stretched public finances mean that the country will
remain heavily reliant on foreign investment for its development. As a consequence, any sudden deterioration in regional instability would have an
immediate negative impact on the country's economy.
Political Risk
While we maintain our view that Jordan's long-term political outlook is broadly stable, the high level of unemployment and sharp economic
inequalities pose downside risks to our view. At the same time, there is a small risk that Jordan's geopolitical relevance could gradually fade,
prompting the US and Gulf Cooperation Council markets to decrease their financial support.
Economic SWOT
Strengths Weaknesses
• Jordan's stability remains a key pillar of the US and Gulf • Unemployment and poverty still remain key problems.
Cooperation Council (GCC) markets' strategy. This bodes well Government promises of an improved welfare system and job
for long-term trade and investment opportunities. creation have proven slow to materialise.
• Substantial investment in the energy sector will allow the • Jordan has few natural resources, which will keep the country
country to gradually move away from its overreliance on oil and dependent on commodity imports over the long term.
gas imports. • A relatively weak private sector limits productivity increases.
Opportunities Threats
• The unveiling of the country's long-term strategic roadmap • Accelerating inflation and limited ability to increase subsidies
could boost business sentiment and lead to an increase in (due to stretched public finances) could weigh on economic
the private sector's investment activity. activity for longer-than-expected.
• The broader regional reconciliation trend will bode well for • Perceived lower geopolitical importance could lead to a sharp
Jordan's image, with positive spillovers on its crucial tourism decrease in inward investment, and aid by the GCC and US.
industry. • Greater cooperation with Israel could lead to popular backlash
• The signing of a free trade agreement with the EU will among the population, which remains largely composed of
create opportunities for Jordanian exporters. Palestinians.
Political SWOT
• Jordan's geopolitical importance as a regional buffer market • King Abdullah II's staunchly pro-US foreign policy is opposed by
ensures that it attracts continued financial and security a significant proportion of the population, posing limits to
assistance from the US and Gulf Cooperation Council member broad-based economic cooperation between the private
markets. sectors of the two countries.
• Since King Abdullah II came to the throne in 1999, there has • The divergence between King Abdullah II's reformist rhetoric
been a notable fall in corruption and the use of wasta, or and the limited reforms that have been implemented is raising
connections, to further business interests. doubts among his critics about the importance of the process.
• The monarchy has broad public support and is widely regarded • The civil war in Syria has seen Jordan hosting thousands of
as a source of policy continuity. refugees, placing additional strains on public finances.
• Constitutional changes approved in January 2022 pave the way • The Islamic Action Front - the Jordanian wing of the
for the prime minister to be selected by the largest party rather international Muslim Brotherhood movement - is still on the
than being handpicked by the king, boding well for political fringes of the political system and is likely to remain so until
stability. fundamental institutional reform is implemented.
• The changes also seek to increase political representation for • Ongoing fiscal consolidation could lead to an escalation in
women, younger Jordanians and political parties in the public protests, given the social contract that has been built
legislature. These changes are likely to increase the long-term around the public sector providing jobs and subsidies to the
stability of the political system through greater inclusiveness. population.
• Greater cooperation with Israel could lead to popular backlash
given the large share of Palestinians among the population.
Economic Outlook
Stronger Private Consumption And Real Export Growth Will Boost Jordanian Growth In
2023
Key View
• We have raised our 2023 forecast for Jordan’s real GDP growth from 2.6% to 2.8%, marking stronger growth than the 2.5% growth in 2022.
• The revision came after Q123 GDP showed growth of 2.8% y-o-y in Q123, slightly above our expectations, and recent monthly mining
production data which pointed to still strong momentum.
• Risks to our outlook are balanced. On the upside, faster easing in global commodity prices could lower inflation and support private
consumption. On the downside, slower growth in the US could dampen demand for Jordanian exports.
We have increased our expectations for Jordan’s real GDP growth in 2023 from 2.6% to 2.8%. In Q123, real GDP grew by 2.8% y-o-y,
slightly above our 2.6% expectations. Although all sectors provided a positive contribution to real GDP growth, the contribution was strongest in
the manufacturing, finance and transport sectors, as well as in wholesale and retail trade (see chart below).
All Sectors Positively Contribute To Jordanian Growth

Jordan – Real GDP Growth, % y-o-y & Component Contribution, pp
Source: Department of Statistics, BMI
The wholesale sector grew by a robust 3.0% y-o-y, above the 2.5% Q123 average between 2010 and 2019 (see chart below). This likely implies
robust domestic demand, a trend which we think has continued in Q223 and will continue in H223 for three reasons.
Above-Trend Growth In The Wholesale Sector

Jordan – Wholesale & Retail Sector Real Growth, %
Source: Department of Statistics, BMI
First, remittance growth will likely remain strong, in line with robust performance in the non-oil economies of countries in the GCC (Gulf
Cooperation Council), which host the lion’s share of Jordan’s expat population. Second, domestic demand will benefit from a sustained easing
inflation in H223. After peaking at 4.2% y-o-y in February, we expecting inflation will remain on downward trend over the remainder of the year.
Third, lower unemployment will also support spending both on domestic and foreign goods. In Q422, unemployment fell to 21.9% from 22.9% in
Q322; the lowest level since Q120. In 2023, we think it will continue to fall to average 21.7% in 2023, as the rate slowly diminishes towards
historical levels.
Meanwhile, we also hold a brighter view on real export growth, which will accelerate this year compared to last year. Indeed, year-to-
date monthly mining production data, including potash, surprised us to the upside as potash production volumes grew by an average of 7.8% in
the first five months of 2023. At the moment, we see no reason to assume a slowdown in this steady production growth, which we think will
continue in coming months and will translate into strong export growth. This is because almost all of Jordan’s potash goes into the production of
exported chemical fertilisers, which are then sold abroad.
Finally, we have maintained our forecasts for growth in government consumption and gross fixed capital investment. On the one
hand, we maintain our view that government consumption growth will slightly accelerate, in line with the current spending target set out in the
2023 general government budget law. Our view is supported by the 14.8% y-o-y increase in central government current spending in Q123 (most
recent data), above the 5.8% average between 2010 and 2019. On the other hand, we think that investment will also provide a slightly stronger
contribution to total real GDP growth, largely supported by the construction industry. In Q123, the construction sector grew by 5.9% y-o-y, well
above the 0.7% y-o-y average between 2010 and 2019. Looking forwards, we think that growth in this sector will remain above trend, and will be
boosted by efforts to grow tourism related infrastructure as part of the Economic Modernisation Vision plan.
Growth Will Be Supported By All Expenditure Components

Jordan – Real GDP Growth, % & Component Contribution, pp (2011-2023)
e/f = BMI estimate/forecast. Source: Central Bank Of Jordan, BMI
Risks To Outlook
Risks to our outlook are balanced. On the one hand, a faster easing in global commodity prices could lead to a sharper fall in headline inflation,
which would in turn boost consumer confidence and, as a result, further support private consumption growth. On the other hand, slower growth in
the US (potentially as a result of more hawkish monetary policy if inflation remains stickier to the upside than currently expected) would likely
dampen demand for Jordanian textiles exports, dampening growth overall.
GROWTH OUTLOOK FOR 2023

Forecast 2022 2023 2023 Description
(Previous) (Updated)
Real GDP Growth 2.5 2.6 2.8 Stronger real export and private consumption growth will further boost overall economic
activity
Private Consumption, PP 1.3 1.4 1.5 Easing inflation, robust remittance growth, and lower unemployment will push up household
spending
Government Consumption, PP 0.3 0.4 0.3 Faster growth in the government's current spending will support government consumption
growth
Gross Fixed Capital Formation, 0.5 0.6 0.6 Real investment growth will be supported by phosphate and potash producers' reinvested
PP earnings
Net Exports, PP 0.3 0.2 0.4 Robust phosphate production growth will keep real export growth above historical trends
Source: BMI
GDP By Expenditure Outlook

Household spending has accounted for about 80% of GDP in the past 10 years and will remain the main driver of the economy over our 10-year
forecast period. Gross fixed capital formation will also continue to represent a sizeable share of the country’s economic activity, as business activity
and investor confidence picks up on improved regional security and the unveiling of the country's Economic Vision plan. The pick-up in
investment will also benefit exports, which will see their share of GDP increase as businesses expand operations in export-oriented industries. The
tourism industry will remain a key driver of growth.
GDP GROWTH FORECASTS (JORDAN 2021-2026)

Indicator 2021 2022e 2023f 2024f 2025f 2026f
Nominal GDP, JODbn 32.0 33.7 35.7 38.5 40.5 42.6
Real GDP growth, % y-o-y 2.2 2.5 2.8 2.7 2.4 2.4
GDP per capita, JOD 2,874.1 2,984.4 3,149.0 3,379.6 3,539.5 3,698.5
e/f = BMI estimate/forecast. Source: Central Bank of Jordan, BMI
GDP GROWTH FORECASTS (JORDAN 2027-2032)
Indicator 2027f 2028f 2029f 2030f 2031f 2032f
Nominal GDP, JODbn 44.9 47.3 50.0 52.8 55.8 59.1
GDP per capita, JOD 3,868.8 4,041.4 4,230.6 4,423.0 4,625.6 4,839.8
f = BMI forecast. Source: Central Bank of Jordan, BMI
Private Consumption: Household spending will remain the main driver of Jordan's real GDP growth over the coming years, boosted by
favourable demographics. The unveiling of the Economic Vision plan will also lead to a modest pick-up in domestic investment, which we believe
will have positive spillover effect on employment among the share of the population working in the informal economy. That said, we see three
major headwinds capping private consumption growth. The first one is elevated unemployment, with latest data showing that total
unemployment was 22.9% in Q123. The second is elevated commodity prices, which will erode purchasing power and exert pressure on local
industrial capacity. The third is the large role played by the public sector, which will keep crowding out the private sector across many industries.
We expect that private consumption will grow on average by 2.6% between 2023 and 2032, slightly lower than the 2010-2019 average of 2.9%.
PRIVATE CONSUMPTION FORECASTS (JORDAN 2021-2026)

Indicator 2021 2022e 2023f 2024f 2025f 2026f
Private final consumption, JODbn 24.7 26.2 27.2 28.4 29.8 31.2
Private final consumption, % of GDP 77.6 76.9 76.3 76.2 76.4 76.5
Private final consumption, real growth % y-o-y 2.4 1.6 1.9 2.6 2.6 2.6
PRIVATE CONSUMPTION FORECASTS (JORDAN 2027-2032)
Private final consumption, JODbn 32.7 34.2 35.9 37.6 39.5 41.4
Government Consumption: We expect government spending growth will remain sluggish in the coming years, as IMF-stipulated fiscal
consolidation measures are implemented. We believe the government will still provide social support to the lower-income segments of society,
including refugees, and will remain the main player in key growth sectors such as healthcare, education and defence. This means that while
government consumption will only grow by an average of 1.6% between 2023 and 2032, it will still be higher than the average flat growth
registered between 2010 and 2019.
GOVERNMENT CONSUMPTION FORECASTS (JORDAN 2021-2026)

Indicator 2021 2022e 2023f 2024f 2025f 2026f
Government final consumption, JODbn 5.8 6.2 6.4 6.6 6.9 7.1
Government final consumption, % of GDP 17.3 17.2 17.0 16.8 16.7 16.5
Government final consumption, real growth % y-o-y 1.6 2.0 1.5 1.5 1.5 1.5
GOVERNMENT CONSUMPTION FORECASTS (JORDAN 2027-2032)

Government final consumption, JODbn 7.4 7.7 8.0 8.3 8.6 8.9
Fixed Investment: We expect gross fixed capital formation to grow steadily in Jordan over the coming years, particularly in export-oriented
sectors such as energy, tourism and transportation. Strong external support from the Gulf Cooperation Council and the US for capital project
funding will be key to driving this trend. In addition, regional security gains and the unveiling of the Economic Vision plan will help increase Jordan's
attractiveness to foreign investors and increase confidence among the local business sector from a low base, with positive knock-on effects for
investment activity.
FIXED INVESTMENT FORECASTS (JORDAN 2021-2026)

Indicator 2021 2022e 2023f 2024f 2025f 2026f
Fixed capital formation, JODbn 6.8 7.2 7.6 8.0 8.5 9.0
Fixed capital formation, % of GDP 20.7 20.7 20.8 21.0 21.2 21.4
Fixed capital formation, real growth % y-o-y 3.5 2.5 3.0 3.6 3.6 3.6
FIXED INVESTMENT FORECASTS (JORDAN 2027-2032)
Fixed capital formation, JODbn 9.5 10.0 10.6 11.2 11.9 12.6
Net Exports: The external sector will play a key role in driving growth, as external demand will likely grow at a faster pace than domestic demand.
Improvements in the the regional security situation, the signing of a Free Trade Agreement with the EU and public infrastructure investments will
help drive growth in exports and attract tourism, contributing positively to economic output. That said, the country's heavy dependence on
imports for consumption and the pickup in investment make us believe that imports growth will also be robust over the next 10 years.
NET EXPORTS FORECASTS (JORDAN 2021-2026)

Indicator 2021 2022e 2023f 2024f 2025f 2026f
Net exports of goods and services, JODbn -6.6 -6.7 -6.4 -5.7 -5.8 -6.0
Net exports of goods and services, % of GDP -20.7 -19.9 -18.0 -14.7 -14.4 -14.2
Net exports of goods and services, real growth % y-o-y 2.6 -1.8 -2.1 2.2 4.0 3.7
NET EXPORTS FORECASTS (JORDAN 2027-2032)
Net exports of goods and services, JODbn -6.2 -6.4 -6.5 -6.7 -6.8 -6.8
Net exports of goods and services, % of GDP -13.8 -13.5 -13.0 -12.6 -12.1 -11.6
Net exports of goods and services, real growth % y-o-y 4.5 4.5 4.2 4.2 4.2 4.2
External Trade And Investment Outlook
Jordan Outlook On External Position

Net International Investment Position: We expect Jordan’s net international investment position (NIIP) to remain in negative territory over the
long term, due to consecutive current account deficits, which will cap growth in reserves and require external funding. Jordan has traditionally been
a net debtor to the rest of the world, with an NIIP averaging 89.1% of GDP over 2008-2021. In recent years, the accumulation of reserve assets has
been highly dependent on Gulf Cooperation Council (GCC) grants (especially from Saudi Arabia and the UAE) and tourism receipts, and we expect
this trend will continue over the long term. Moving forward, we think that the country’s NIIP will trend close to -80% of GDP.
NIIP Will Likely Remain In Negative Territory

Jordan - Net International Investment Position, JODbn (2010-2021)
Source: CBJ, BMI
Balance Of Payments: Jordan has posted consistent current account deficits since 2004, largely on account of its wide goods trade deficits. The
goods trade typically represents the largest components within the current account, averaging 28.2% of GDP between 2000 and 2019. Primary
income is also typically negative, averaging -0.7% of GDP over the same period. In recent years, the narrowing of the current account deficits has
mostly been growth on the back of higher tourism receipts. The services trade balance has consistently remained in surplus since 2006 (with one
exception in 2020), on the back of higher tourism receipts.
Current Account Will Remain In Deficit, But This Will Gradually Narrow
Jordan - Current Account Balance By Component, % of GDP (2015-2032)
f = BMI forecast. Source: CBJ, BMI
We anticipate that Jordan’s external balance will remain in deficit over the long term, owing to structural reliance on goods imports for
consumption and a pickup in investment, which will drive up demand for capital inputs. That said, there is still space for some mild optimism. We
think that the current account deficit will decline from a 9.0% of GDP deficit in 2022 to average 4.1% between 2023 and 2032.
JORDAN - BREAKDOWN OF EXPORTS (2021)

By Market % Of Total Exports By Category % Of Total Exports
US 22.2 Knitting & Clothing Accessories 20.5
India 10.9 Fertilisers 15
Saudi Arabia 10.5 Inorganic Chemicals 13.5
Iraq 8.4 Gems, Precious Metals 7.9
UAE 4.4 Salt, Sulphur & Cement 7.7
Source: CBJ, BMI
JORDAN - BREAKDOWN OF IMPORTS (2021)

By Market % Of Total Imports By Category % Of Total Imports
China (Mainland) 16.1 Machinery & Equipment 19
Saudi Arabia 14.1 Food 18.6
UAE 8.1 Mineral Fuels 15.9
US 7.9 Manufactured Goods 14.3
Switzerland 4.1 Chemicals 11.7
Source: CBJ, BMI
Capital And Financial Account: Jordan has historically been structurally dependent on external debt and capital inflows from the GCC and the
US to finance its consistent current account deficits. Over the past 10 years, subdued growth in foreign investment has increased the country’s
reliance on grants and external debt, which over the past 10 years has doubled from 22.5% of GDP in 2012 to 50.3% in 2021. We think that both
grants and external debt will remain the main source of funding over the long term. The GCC and the US will continue to prioritise Jordan’s stability
due to its key geopolitical role in the region. At the same time, the country will continue to tap the debt markets, as witnessed by the sale of
USD1.5bn in eurobonds in April 2023. We think that Jordan will likely witness steady growth in foreign direct investment on the back of the
authorities’ Economic Vision plan.
CURRENT ACCOUNT BALANCE FORECASTS (JORDAN 2021-2026)

Indicator 2021 2022 2023f 2024f 2025f 2026f
Goods imports, % of GDP 42.5 51.2 44.8 40.9 40.4 40.2
Goods exports, % of GDP 20.7 26.1 21.6 20.4 19.6 19.3
Balance of trade in goods, USDbn -9.8 -11.9 -11.7 -11.1 -11.9 -12.5
Balance of trade in goods, % of GDP -21.7 -25.1 -23.2 -20.5 -20.8 -20.9
Services imports, % of GDP 9.2 12.0 12.1 11.6 11.3 11.1
Services exports, % of GDP 10.0 16.8 17.0 17.0 17.5 17.5
Balance of trade in services, USDbn 0.4 2.3 2.5 3.0 3.5 3.9
Balance of trade in services, % of GDP 0.8 4.8 4.9 5.5 6.2 6.4
Primary income balance, % of GDP -0.5 -1.1 -1.3 -1.4 -1.5 -1.6
Secondary income balance, % of GDP 13.2 12.6 13.8 13.0 12.6 12.2
Current account balance, USDbn -3.7 -4.1 -2.9 -1.9 -2.0 -2.3
Current account balance, % of GDP -8.2 -8.7 -5.9 -3.4 -3.6 -3.9
CURRENT ACCOUNT BALANCE FORECASTS (JORDAN 2027-2032)
Goods imports, % of GDP 39.8 39.5 39.1 38.7 38.2 37.7
Goods exports, % of GDP 19.1 19.0 18.9 19.0 19.1 19.4
Balance of trade in goods, % of GDP -20.7 -20.6 -20.2 -19.7 -19.1 -18.4
Services imports, % of GDP 10.8 10.6 10.3 10.1 9.8 9.5
Services exports, % of GDP 17.5 17.3 17.2 16.9 16.5 16.1
Balance of trade in services, % of GDP 6.6 6.7 6.9 6.8 6.7 6.6
Primary income balance, % of GDP -1.7 -1.8 -1.9 -2.0 -2.1 -2.2
Secondary income balance, % of GDP 11.8 11.5 11.1 10.7 10.3 9.9
Monetary Policy Outlook
Jordan's Inflation Will Remain Subdued Through 2024

Key View
• We believe that the Central Bank of Jordan’s tightening cycle has ended and that it will hold the main rate at 7.50% until mid-2024, before
cutting it to 5.75% by end-2024.
• We expect that inflation will remain subdued through H223, despite a tick-up in Q423 due to seasonal effects. Indeed, after averaging 2.5% y-o-
y in the first eight months of 2023, we expect that inflation will average just 1.1% in the last four months of the year. In 2024, inflation will
average 2.0%, nearly unchanged from 2023.
• Risks to the inflation outlook are weighted to the upside due to the growing chance of higher-than-expected oil prices. When it comes to risks
to the interest rates forecast, the US Federal Reserve could further hike in H223 or hold the rates higher for longer, which will prompt the CBJ to
follow a similar monetary policy trajectory.
After hiking by five percentage points since March 2022 to 7.50%, we believe that the Central Bank of Jordan (CBJ)'s tightening
cycle has now ended and that it will keep the main policy rate at its current level through end-2023. The CBJ has mirrored the US
Federal Reserve (Fed) monetary policy cycle to preserve the Jordanian dinar’s peg to the US dollar and build foreign currency reserves in line with
its mandate, and will continue to do so in the foreseeable future (see chart below).
CBJ Will Hold The Policy Rate Until Mid-2024

Jordan & US – Policy Rates, %
Note: dots represent end of year forecast. Source: CBJ, US Federal Reserve, BMI
Tight monetary conditions along with lower year-on-year commodity prices and favourable base effects will keep inflation
subdued. After averaging 2.5% y-o-y over the first eight months of 2023, we expect that inflation will average just 1.1% over the last four months
of the year and end the year at 1.5% y-o-y. Admittedly, our end-2023 forecast masks a slight pickup in inflation in Q423 due to the seasonal
adjustment to the education cost.
Since March 2022, the prime lending rate and the weighted average interest rate on loans and advances have increased in line with the rise in the
main policy (see chart below). The CBJ has also tightened financial conditions by issuing Certificate of Deposits to reduce excess liquidity. These
dynamics have discouraged credit-based spending and contributed to the easing of the inflation. As more loans will be re-repriced on the higher
prime lending rate, we expect that this channel will continue to dampen inflationary pressures ahead.
Rising Lending Rates Will Ease Price Growth

Jordan – Main Policy Rate & Lending Rates, %
Source: CBJ, US Federal Reserve, BMI
Additionally, we expect that fading base effects from the rise in electricity tariffs in April 2022 will keep the contribution of the housing & utilities
component of the CPI basket – weighting of 23.78% of the CPI – contained in the months ahead. This component was a major driver of inflation
between April 2022 and March 2023 (see chart below), contributing 2.1 percentage points (pp) to inflation in the covered period but we expect
this will fall to around 0.5pp over the rest of 2023.
Fading Base Effects From Hike In Electricity Prices

Jordan – CPI Components, pp Contribution
Source: DOS, BMI
We also anticipate that lower commodity prices on a year-on-year basis will lead to slower food (26.7% of the CPI basket) and transport price
growth (15.98% of the CPI basket). While we are seeing an uptick in global oil prices from the rollover of 1.3mn b/d cuts to production of Saudi
Arabia and Russia until the end of the year, our Oil & Gas team continues to think that prices will soften in Q424 due to a challenging global
economic backdrop. Moreover, the team does not expect oil prices to rise significantly and sustainably above USD90.0/bbl. We expect that
Jordan’s transport prices will follow a broadly similar pattern as they have historically done (see chart below, right).
Similarly, the grains markets have absorbed the expiration of the Black Sea Grain Initiative on July 17, with corn and wheat prices have given up
most of their gains. As our Commodities team expects that grain prices will trend lower in the months ahead, this will lead keep dampening food
inflation (see chart below, left).
Lower Commodity Prices Will Soften Price Growth

Jordanian Food & Global Wheat Prices, % y-o-y (LHC) & Jordanian Transport & Global Brent Prices, % y-o-y (RHC)
Note: 2023 and 2024 annual changes are based on BMI forecasts. Source: DOS, Macrobond BMI
In 2024, we expect that the CBJ will hold the main rate at 7.50% until late Q224, and then cut it to 5.75% by the end of next
year. This is in line with our Global Country Risk team's view on the Fed fund rate (see first chart). We also forecast that average inflation will
remain broadly unchanged at 2.0% in 2024, due to favourable base effects from H123, before normalising in H224 (see chart below). This will
be supported by lower wheat prices; our Commodities team forecasts a 5.7% drop in wheat prices in 2024 and contained oil prices.
Stable Inflation In 2024

Jordan - Inflation, %
f = BMI Forecast. Source: DOS, BMI
Risks to the outlook are skewed to the upside. Higher oil prices than we currently expect – our forecast assumes an average oil price of
USD80.0/bbl in H223 – would increase transport cost and headline inflation. At the same time, resilient US economy could prompt the Fed to
further hike in H223 or hold the rate higher for longer, causing upside risks to our 2023 and 2024 policy rate in Jordan.
MACROECONOMIC FORECASTS
Indicator 2022 2023f 2024f
CBJ policy rate (eop), % 6.50 7.50 5.75
US Fed policy rate (eop), % 4.50 5.50 3.75
Headline inflation (average), % 4.2 2.0 2.0
f = BMI forecast. Source: National sources, BMI
Monetary Policy Framework

We expect annual inflation in Jordan to continue to move in line with global oil prices, given the country's persistently high energy import reliance.
Relatively weak aggregate demand pressures will offset structurally higher commodity prices. As a result, we see annual inflation hovering around
2.1% over the next 10 years, lower than the 2010-2019 average of 2.8%.
Inflation Pressures Will Remain Moderate

Jordan - Inflation CPI
Given that food and non-alcoholic drinks also make up around 33% of the consumer price index (CPI) basket (thus representing the largest single
component), and with Jordan importing almost all of its grain consumption, the country will remain significantly exposed to imported inflation over
the coming years and fluctuations in wheat prices.
Exposed To Global Oil And Fuel Prices

Jordan - Breakdown Of CPI Basket, %
Source: CBJ, BMI
Despite having a mandate covering inflation and economic growth, the Jordanian dinar's peg to the US dollar limits the CBJ's ability to act
independently. We expect the CBJ to track the US Federal Reserve's monetary policy moves throughout the coming decade.
MONETARY POLICY FORECASTS (JORDAN 2021-2026)

Indicator 2021e 2022e 2023f 2024f 2025f 2026f
Consumer price inflation, % y-o-y, eop 2.4 5.3 1.5 2.4 1.9 1.9
M2, JODbn 37.2 39.1 41.4 44.7 47.0 49.4
M2, % y-o-y 3.6 5.1 6.0 7.8 5.3 5.2
Central bank policy rate, % eop 2.50 6.50 7.50 5.75 4.75 4.75
e/f = BMI estimate/forecast. Source: CBJ, BMI
MONETARY POLICY FORECASTS (JORDAN 2027-2032)
Consumer price inflation, % y-o-y, eop 1.9 1.9 1.9 1.9 1.9 1.9
M2, JODbn 52.1 54.9 58.0 61.3 64.8 68.6
M2, % y-o-y 5.4 5.4 5.7 5.6 5.7 5.9
Fiscal Policy And Public Debt Outlook
Structural Fiscal Position

Government Debt: Jordan has the second largest public debt relative to GDP in the Middle East and North Africa region, behind only Lebanon.
This is the legacy of years of relatively large fiscal deficits recorded between 2009 and 2013 due to a sharp reduction in foreign grants amid the
2008 financial crisis and a sharp increase in subsidy spending to quell social discontent in the country in 2011, while many markets in the region
were witnessing elevated bouts of unrest.
Further Fiscal Consolidation Will Prove Hard To Implement

Jordan - Government Spending & Revenue, % of GDP
Jordan will continue to post fiscal deficits over the coming years, meaning that interest payments on the public debt will remain high. That said,
interest payments as a percentage of GDP are likely to remain stable as Amman will keep refinancing most of its legacy debt.
We expect Jordan's fiscal profile to remain stable given that the country's external debt repayment schedule is relatively spread out. More
importantly, with the US backing a substantial share of the country's eurobonds, risks to debt sustainability remain contained.
Fiscal Deficit: Between 2012 and 2019, Amman steadily cut down expenditure as a share of GDP, reducing subsidies. However, these subsidies
were taken at a time of lower commodity prices, meaning that they entailed lower risk of social unrest. After the Covid-related surge in spending in
2020 and 2021, the current window of elevated commodity prices will reduce the space for the government to return to tight fiscal policy. This is
despite the government's renewed arrangement with the IMF in 2020 aimed at reducing the country's debt-to-GDP ratio. Thus, we think that
Jordan's spending outlook will remain relatively rigid at best, with only limited progress being made in narrowing the fiscal deficit.
Debt Burden Will Stabilise, But Will Remain High

Jordan - Gross Debt & Fiscal Balance
Government Share Of GDP: Despite Amman's dedication to implementing the IMF-backed fiscal consolidation, the government will post
consecutive fiscal deficits, which will keep the debt-to-GDP ratio slightly over 100% over our forecast period. Even so, we anticipate that the
government will have limited challenges in refinancing upcoming maturities, as the country's banking sector will keep subscribing to the country's
domestic debt, while institutions from the US and Gulf Cooperation Council will keep subscribing to external debt.
CENTRAL GOVERNMENT REVENUES AND EXPENDITURE (JORDAN 2021)

Breakdown Of Revenue % Of Total Breakdown Of Expenditure % Of Total
Tax 58.49 Current 88.5
Other 31.81 Of which, interest payments 16.1
Pension contributions 0.16 Capital 11.5
Foreign grants 9.53
Source: CBJ, BMI
FISCAL AND PUBLIC DEBT FORECASTS (JORDAN 2021-2026)

Indicator 2021e 2022e 2023f 2024f 2025f 2026f
Total revenue, JODbn 8.1 8.9 9.5 10.1 10.7 11.3
Total revenue, JOD, % y-o-y 15.6 9.7 6.9 6.2 5.7 5.6
Total expenditure, JODbn 9.9 10.5 11.2 11.5 12.0 12.5
Total expenditure, JOD, % y-o-y 7.0 6.2 6.8 2.6 4.6 4.4
Budget balance, JODbn -1.7 -1.6 -1.6 -1.3 -1.3 -1.2
Budget balance, % of GDP -5.4 -4.6 -4.6 -3.5 -3.2 -2.9
Total government debt, USDbn 49.9 53.6 56.5 59.6 62.8 66.2
Total government debt, % of GDP 110.5 113.0 112.4 109.9 110.1 110.3
FISCAL AND PUBLIC DEBT FORECASTS (JORDAN 2027-2032)

Total revenue, JODbn 11.9 12.6 13.4 14.2 15.1 16.0
Total revenue, JOD, % y-o-y 5.8 5.8 6.1 6.0 6.1 6.3
Total expenditure, JODbn 13.2 13.8 14.5 15.3 16.1 17.0
Total expenditure, JOD, % y-o-y 5.1 5.0 5.3 5.2 5.4 5.5
Budget balance, JODbn -1.2 -1.2 -1.1 -1.1 -1.1 -1.0
Total government debt, USDbn 69.7 73.5 77.5 81.7 86.1 90.7
Total government debt, % of GDP 110.3 110.3 110.1 109.9 109.5 109.0
10-Year Forecasts
Expanding Private Sector Offers Potential

Key View
• While an expanding private sector from a low base will support Jordan's steady growth over our 10-year forecast period, elevated
unemployment and a strong role of the public sector will cap productivity gains.
• This means that Jordan's will remain heavily reliant on external dynamics, such as trade, tourism and foreign investment, to grow above its long-
term historical trend.
• A growing young population, combined with limited employment opportunities, continued energy dependency and risk of regional instability
could pose downside risks to our long-term outlook.
We believe that private consumption will be the key driver of economic growth over the long term, accounting for around 80% of
GDP throughout our forecast period. We currently expect that private consumption will rise by an average of 2.6% y-o-y over the next decade,
as an expanding population and steady remittance inflows from Gulf Cooperation Council markets allow the private sector to expand from a low
base. Elevated unemployment and a heavy role of the government will cap productivity gains brought about by favourable demographics,
preventing the country's overall real GDP growth rate from rising above historical trends.
External Dynamics Pose Upside Risk
The external sector will be the key variable impacting Jordan's economic outlook over the long term. Our core scenario assumes that exports will
account, on average, for 47.4% of GDP between 2023 and 2032, above the 2010-2019 average of 44.1%. We believe that government strategies
to improve trade will be contingent on Jordan's ability to support foreign demand for its goods, drive tourism inflows and attract higher foreign
investment. Under a trade perspective, we believe that nearly 50% of Jordan’s exports will be absorbed by markets in the Middle East, while 10-15%
will be absorbed by India and 15-20% by the US. Exports to Mainland China, in contrast, will likely remain insignificant, with most of the resources
that Jordan has to offer being covered by Chinese domestic production. Tourism will also grow, boosted by investment in public infrastructure,
which will provide a significant number of job opportunities. The unveiling of the country's long-term economic roadmap will act as a framework
reference for the local and foreign business community to ramp up domestic investment in export-oriented industries.
Steady Growth Over The Long Term

Jordan - Real GDP Growth, %
Risks To Outlook
We highlight key threats that Jordan will need to confront to maintain a steady rate of economic expansion over the coming decade.
• Elevated Youth Unemployment: The country's young population, combined with limited employment opportunities, poses downside risks.
Should the private sector fail to offer enough jobs over the coming years, Jordan could face serious political unrest, negatively altering its
business environment.
• Regional Instability: Sudden bouts of regional instability could negatively impact investor sentiment, reducing the inflows of foreign
investment, remittances and aid, which the country is reliant on.
• Swings In Commodity Prices: As Jordan is among the few markets in the Middle East lacking abundant hydrocarbon resources, it requires a
constant supply of energy to support growth in its manufacturing and services sector. A protracted period of elevated commodity prices would
prompt firms to either ease production or pass on the higher price to the consumer, driving up inflation and capping private consumption
growth.
LONG-TERM MACROECONOMIC FORECASTS (JORDAN 2023-2032)

Indicator 2023f 2024f 2025f 2026f 2027f 2028f 2029f 2030f 2031f 2032f
Nominal GDP, USDbn 50.3 54.2 57.0 60.0 63.2 66.6 70.4 74.3 78.6 83.2
Real GDP growth, % y-o-y 2.8 2.7 2.4 2.4 2.4 2.4 2.5 2.6 2.6 2.6
GDP per capita, USD 4,435 4,759 4,985 5,209 5,449 5,692 5,958 6,229 6,514 6,816
Population, mn 11.34 11.38 11.44 11.52 11.60 11.70 11.81 11.93 12.07 12.21
Consumer price inflation, % y-o-y, ave 2.0 2.0 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1
Exchange rate JOD per USD, ave 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71 0.71
Current account balance, % of GDP -5.9 -3.4 -3.6 -3.9 -4.0 -4.2 -4.1 -4.2 -4.2 -4.1
DISCLAIMER
Our long-term macroeconomic forecasts are based on a variety of quantitative and qualitative factors. Our 10-year forecasts assume in most cases that growth eventually
converges to a long-term trend, with economic potential being determined by factors such as capital investment, demographics and productivity growth. Because quantitative
frameworks often fail to capture key dynamics behind long-term growth determinants, our forecasts also reflect analysts’ in-depth knowledge of subjective factors such as
institutional strength and political stability. We assess trends in the composition of the economy on a GDP by expenditure basis in order to determine the degree to which
private and government consumption, fixed investment and the export sector will drive growth in the future. Taken together, these factors feed into our projections for
exchange rates, external account balances and interest rates.
Source: BMI
Political Outlook
Broad Political Stability Ahead In Jordan, Despite Elevated Risks

Key View
• We expect broad political stability in Jordan in the coming quarters; however, several political challenges lie ahead.
• Despite political reforms, we expect the opposition to remain weak following the parliamentary elections due to historical underperformance
and limited political of influence of parties.
• The new cybercrime bill will pose risks to social stability. The approval by the King of the cybercrime law in August 2023 will constrain civic
space, which will further alienate the electorate and keep the low voter turnout for the next election.
• On the foreign policy front, we expect Jordan to continue the engagement with Syria, although tensions may increase as Jordan's military step
up their operations at the Jordanian-Syrian border due to the illegal drugs trade, which remains a prevailing issue.
We expect broad political stability in Jordan in the coming quarters. There have been no signs of further social unrest following a wave of
protests over fuel prices in December 2022. While more protests cannot be ruled out, unemployment and inflation continue to fall (albeit from
high levels), implying that future unrest is unlikely to destabilise the government. Nevertheless, the government will face several challenges ahead.
Jordan Faces Social Unrest Risks

Select Regions - STPRI (LHC) STPRI & Sub-Components (RHC)
Note: Short-Term Political Risk Index = STPRI. Scores are out of 100; lower score = higher risk. Source: BMI
The 2022 elections law, which aims to increase the representation of political parties over the coming years, could help reducing
anti-government sentiment. The electoral law will increase the number of seats from 130 and 138, and seats reserved for political parties will
gradually increase in the next elections, reaching 65.0% of the total seats in 2028.
Despite political reforms, we expect the main opposition Islamic Action Front to remain weak going into and following the next
parliamentary elections due by November 2024. Historically, it has boycotted elections in the past due to the perceived limited political
conditions and lack of reforms. Indeed, while the 2022 elections law aims to empower political parties, their presence in the House of
Representatives has been marginal, and we expect parties to struggle to reach the necessary 2.5% threshold to win seats. Parties are poorly
represented due to the dominance of tribal-based voting, which favours independent candidates with tribal affiliations. In the last parliamentary
election in 2020, main opposition Islamic Action Front (IAF) won only five seats, having decreased from ten seats previously, while the more
moderate Islamic Centre Party won five seats. Ideological differences within the IAF and among other parties may hinder the formation of
coalitions for a strong opposition in the next election. Moreover, even when parties form coalitions, they struggle to make gains. For instance, the
'Progressive List' which was composed by a coalition of socialist and nationalist parties, only obtained one seat in the 2020 election, which signals
further weakness of political parties in Jordan. Therefore, we expect Jordan to remain broadly stable, resulting in another government majority of
regime loyalists. For now, we are retaining our Short-Term Political Risk Index (STPRI) at 64.9.
Tribal Voting Will Dominate Jordanian Politics, Parties To Have Limited Influence
Jordan - 2020 Election Results (LHC) & Voter Turnout (2003-2020), % (RHC)
Source: Inter-Parliamentary Union, BMI
The high number of Syrian refugees will increasingly pressure the economy. Jordan hosts more than 1.3mn Syrian refugees according to
the United Nations High Commissioner for Refugees (UNHCR). In July, the World Food Programme (WFP) announced a reduction of monthly food
aid to 465,000 refugees and the exclusion of about 50,000 other people from monthly assistance starting in August 2023 due to funding shortfalls
in 2023. While Saudi Arabia has provided USD6.8mn to WFP to support its operations in Jordan, the organisation stated the need for a further
USD23mn to continue aid provision. Without additional funding, all food assistance will be suspended in October 2023, further straining public
resources and increasing the demand for education, healthcare, energy and other public services, which will increase social dissatisfaction over
living conditions. We forecast Jordan’s real GDP growth of 2.8% in 2023, and unemployment remains high at 21.9% in Q123. This is reflected in the
country’s low score of 53.8 out of 100 (lower score implies higher risk) in the ‘social stability’ sub-component of our STPRI.
Jordan's War With Drugs Is Driving Military Spending

Select Regions - Military Spending, % of GDP
Source: Stockholm International Peace Research Institute, BMI
We expect Jordan to continue to engage with the Assad regime, although tensions may increase as Jordanian military step up
their operations at the Jordanian-Syrian border. Jordan has been vulnerable to the trade of Captagon from its border with Syria, which has
been identified as a national security issue. In August 2023, Interior Minister Mazen Al Faraya stated that drug use in the country is rising, which
allegedly stems from Jordan being the main passage for the smuggling of drugs from southern Syria into the Arabian Peninsula. Indeed, on August
13, Jordanian military shot down a drone carrying crystal methamphetamine, signalling that the illegal trade issue is growing. While Syrian
President Bashar al-Assad has denied his government’s role in the drug trafficking, we expect Jordan to increase military operations in an effort to
halt cross-border smuggling as it will continue being a prevailing issue. This could pose a downside risk for Jordan’s security environment, which
currently has a score of 63.3 in our STPRI.
Long-Term Political Outlook
Lingering Risk Of A Resurgence In Social Discontent Poses Threat To Long-Term Stability

Key View
• Following some political and economic reforms by the government in the recent years, we retain our view that Jordan will remain broadly stable
over the long term.
• However, high unemployment, low living standards and a lack of political freedoms (all features that Jordan shares) all pose risk to long-term
stability.
Jordan is one of the most stable markets in the Middle East and North Africa (MENA) region, with political power wielded by King Abdullah II, who
succeeded his father King Hussein in 1999. However, the country is not immune to unrest, and the political upheaval in MENA in early 2011
demonstrated that even seemingly durable and stable governments can be overthrown or brought to the brink of revolution.
In the longer term, Jordan is likely to remain largely under monarchical rule. The more reformist policies that have occurred in the country since
King Abdullah II ascended to the throne point towards a continuation of political stability. Like Morocco, Jordan has been implementing some
reforms over the past decade, ensuring a stable political ground for the monarchy to continue over the longer term. However, the absence of
major progress addressing corruption and persistently high rates of unemployment will continue to represent substantial challenges for the
government. While the king will likely remain a relatively popular figure and the monarchy will be less endangered than the cabinet, the
government will come under pressure and more ministerial reshuffles are likely.
Challenges And Risks To Political Stability
Centralised Powers: The king is the head of state and main executive authority in Jordan, holding power in all three branches. According to the
constitution, the king appoints/dismisses the prime minister, has the power to approve/dismiss the parliament and names all judges. The
separation of powers is, therefore, weak and heavily skewed toward handing most entitlement to the executive, particularly the king. While this
ensures a smooth political process, with laws being passed and enacted without significant delays, the lack of balance and the overwhelming
power of the king are likely to strengthen opposition movements in the long run. Although a political reform plan established by King Abdullah II
has seen the prime minister's position relegated to appointment by parliamentarians since 2013, the monarchy will continue to retain significant
powers.
Succession Of Power: King Abdullah has indicated that his son Hussein will ascend to the throne when the monarch's post will become vacant.
At this point in time, it is too early to suggest that the succession poses instability risks. However, the wave of arrests undertaken in April 2021
against the king's half-brother Prince Hamza and his aides prevent us from ruling out future attempts of other royal family members to seize
power.
Large Youth Population: Over 60% of Jordan's population is under 30, and although levels of education are increasingly higher, job opportunities
remain limited. Youth unemployment stands at 34%, with female unemployment thought to be as high as 50% in some areas. With no energy
reserves and relatively weak industrial production, Jordan's reliance on foreign aid from the wealthier Gulf Cooperation Council (GCC) markets will
not ensure sustainable long-term economic growth. Unless the private sector creates new jobs in the coming years, the risks of serious economic
stagnation cannot be ruled out. In the long term, this could increase social unrest and result in rising support for Islamist or other radical political
groups.
Tensions Between 'Native' Jordanians And Palestinians: A major social fault line exists between 'native' Jordanians and residents of
Palestinian origin. The former comprise the bedrock of support for the monarchy and the existing political establishment. The latter community
accounts for the majority of Jordan's population, but is marginalised from political and military posts.
Corruption: Corruption is among the greatest obstacles that Jordan will face in the coming decade. According to surveys, almost two-thirds of
Jordanians perceive both the public and the private sector as corrupt. Transparency International's Corruption Perceptions Index scored Jordan just
47 (out of 100) for this indicator in 2022, ranking the country 61st out of 180 markets included.
Unpredictable Geopolitical Environment: Although Jordan has avoided entanglement in regional conflicts, such as Syria and Iraq, and has
signed a peace treaty with Israel, it still faces a highly unpredictable geopolitical environment. The Iraq war drove hundreds of thousands of Iraqi
refugees to flee to Jordan, putting great pressure on its economy. Jordan has welcomed more than 500,000 registered refugees fleeing the conflict
in neighbouring Syria, putting great strain on its public finances and labour market. Jordan also continues to host millions of Palestinian refugees.
Given this backdrop, any further instability in the region would be highly destabilising for Jordan.
Scenarios For Political Change
Preservation Of The Status Quo: The most likely scenario to unfold over the coming decade is King Abdullah II remaining the head of state and
keeping most of his powers to intervene in political decision-making. The army will remain under the command of the king and sporadic protest
movements will be appeased through short-term financial aid and possibly suppressed with the use of security forces if they turn violent. The
monarchy is likely to give away some of its powers and cede some of its business influence, yet most of these actions will be primarily symbolic
and the effects will be minimal. The reform process will continue to be skewed towards increasing ties with the GCC markets and, to a lesser extent,
Western markets, while maintaining the high reliance on financial aid from the wealthier oil exporters in the Gulf. The political process will remain
relatively opaque, with the Cabinet of Ministers continuing to be used as a buffer between the king and the population. Consequently, further
cabinet reshuffles are expected in the next 10 years, as an instrument to respond to social demands and accusations of inefficiency in enacting
reforms. The political class will remain largely unchanged and power will be rotated among the same political figures.
Pursuit Of Reforms: In the best-case scenario, the government will undertake more comprehensive political and economic reforms. A series of
privatisations would cause job losses in the immediate term, which would arouse some public opposition. However, in the longer term,
inefficiencies in the economic process would be reduced and further dynamism would add to sustainable private sector expansion.
While programmes of economic reforms and liberalisation would benefit Jordan's economy, the political outlook could be negatively affected.
Indeed, greater financial autonomy among Jordanian youth could fuel renewed expectations of a greater role in the policymaking process. This
could generate stronger business groups that can have an increasingly greater say in the political arena. This way, the status quo would come
under threat and the monarchy's power could be undermined. Eventually, this could result in Jordan becoming a constitutional monarchy, with full
executive powers being transferred to the government and parliament.
Escalation Of Social Unrest: In the worst-case scenario, Jordan could face major civil unrest between military forces and protesters demanding
reduced power for the monarchy. Considering the social issues with which Jordan is confronted, further failure to reform and improve living
standards, create jobs and assign more political freedoms to the population could intensify protest activities. The wave of protests that emerged
through the region at the start of 2011 is a precedent to take into consideration for assessing the threat of more pronounced social upheaval over
the coming decade. In addition, the violent protests in 2014, 2018 and 2020 denote social tensions that are currently contained. Should the
population's grievances not be addressed effectively, such tensions could rise and degenerate into more violent clashes between protesters and
military forces. Faced with increased dissent, the army and security services, under the command of the monarchy, would be forced to respond,
with the possibility of large-scale confrontations with opposition groups. High civilian casualties could trigger greater civil support for the
protesters, ultimately degenerating into a civil war and significantly destabilising the monarchy.
Macroeconomic Forecasts

Indicator 2022e 2023f 2024f 2025f 2026f 2027f
Nominal GDP, USDbn 47.4 50.3 54.2 57.0 60.0 63.2
Nominal GDP, EURbn 45.1 46.1 49.3 50.9 53.6 56.5
GDP per capita, USD 4,203 4,435 4,759 4,985 5,209 5,449
GDP per capita, EUR 3,997 4,069 4,327 4,451 4,651 4,865
Population, mn 11.29 11.34 11.38 11.44 11.52 11.60
Unemployment, % of labour force, eop 22.9 21.8 20.7 19.6 18.7 17.7
Consumer price inflation, % y-o-y, ave 4.2 2.0 2.0 2.1 2.1 2.1
Lending rate, %, ave 8.0 8.0 8.0 8.0 8.0 8.0
Exchange rate JOD per USD, ave 0.71 0.71 0.71 0.71 0.71 0.71
Exchange rate JOD per EUR, ave 0.75 0.77 0.78 0.80 0.80 0.80
Goods and services exports, USDbn 20.3 19.4 20.3 21.2 22.1 23.1
Goods and services imports, USDbn 30.0 28.6 28.5 29.5 30.8 32.0
Balance of trade in goods and services, USDbn -9.6 -9.2 -8.1 -8.4 -8.7 -8.9
Balance of trade in goods and services, % of GDP -20.3 -18.3 -15.0 -14.7 -14.5 -14.1
Foreign reserves ex gold, USDbn 9.4 9.6 9.7 10.0 10.5 11.0
Import cover, months 3.8 4.0 4.1 4.1 4.1 4.1
Budget balance, USDbn -2.2 -2.3 -1.9 -1.8 -1.7 -1.7
National Sources/BMI

Indicator 2028f 2029f 2030f 2031f 2032f
Nominal GDP, USDbn 66.6 70.4 74.3 78.6 83.2
Nominal GDP, EURbn 59.5 62.8 66.4 70.2 74.3
Real GDP growth, % y-o-y 2.4 2.5 2.6 2.6 2.6
GDP per capita, USD 5,692 5,958 6,229 6,514 6,816
GDP per capita, EUR 5,082 5,320 5,562 5,816 6,086
Population, mn 11.70 11.81 11.93 12.07 12.21
Unemployment, % of labour force, eop 16.8 16.0 15.2 14.4 13.7
Consumer price inflation, % y-o-y, ave 2.1 2.1 2.1 2.1 2.1
Lending rate, %, ave 8.0 8.0 8.5 9.5 10.5
Central bank policy rate, % eop 4.75 4.75 4.75 4.75 4.75
Private final consumption, % of GDP 76.9 77.1 77.2 77.4 77.6
Private final consumption, real growth % y-o-y 2.7 2.7 2.8 2.8 2.8
Government final consumption, % of GDP 16.2 16.1 16.0 15.8 15.7
Government final consumption, real growth % y-o-y 1.6 1.6 1.7 1.7 1.7
Fixed capital formation, % of GDP 22.0 22.3 22.5 22.8 23.1
Fixed capital formation, real growth % y-o-y 3.7 3.7 3.8 3.8 3.8
Exchange rate JOD per USD, ave 0.71 0.71 0.71 0.71 0.71
Exchange rate JOD per EUR, ave 0.80 0.80 0.80 0.80 0.80
Goods and services exports, USDbn 24.2 25.4 26.7 28.0 29.5
Goods and services imports, USDbn 33.4 34.8 36.2 37.8 39.3
Balance of trade in goods and services, USDbn -9.2 -9.3 -9.6 -9.8 -9.8
Balance of trade in goods and services, % of GDP -13.8 -13.3 -12.9 -12.4 -11.8
Current account balance, USDbn -2.8 -2.9 -3.1 -3.3 -3.4
Current account balance, % of GDP -4.2 -4.1 -4.2 -4.2 -4.1
Foreign reserves ex gold, USDbn 11.6 12.1 12.7 13.4 14.0
Import cover, months 4.2 4.2 4.2 4.3 4.3
Budget balance, USDbn -1.7 -1.6 -1.6 -1.5 -1.4
Budget balance, % of GDP -2.5 -2.3 -2.1 -1.9 -1.7
National Sources/BMI
Executive Summary
Key View
Core Views
• We expect that West Bank & Gaza's real GDP growth will decelerate from an estimated 3.9% in 2022 to 3.0% in 2023.
• Slower activity in Israel will lead to lower export growth in the West Bank & Gaza. Meanwhile, private consumption will weaken due to elevated
inflation, tighter monetary policy and fading base effects, while government consumption and investment activity will remain subdued.
• We forecast that inflation will ease from an average of 3.7% in 2022 to 3.4% in 2023.
• This will be due to declining global commodity prices and elevated global and domestic interest rates in 2023.
• We expect that the territories' fiscal deficit will widen from 1.0% of GDP in 2022 to 2.9% of GDP in 2023 and 3.2% of GDP in 2024.
• Government spending will continue to outstrip revenue amid a decline in clearance revenue (funds collected by Israel on the Palestinian
Authority's behalf), tax revenue and aid flows.
• We foresee higher security risks in the West Bank & Gaza in 2023, mainly due to the emergence of new armed groups and increased tit-for-tat
rocket attacks by Palestinian militant groups, as well as targeted raids by Israeli forces. However, we see limited scope for an escalation to a
larger conflict similar to May 2021.
• Risks of protests in the West Bank remain elevated as social dissatisfaction with the Palestinian Authority is on the rise amid worsening living
conditions and plans to cut the number of employees in the public sector.
Key Risks
• Stronger growth in Israel and/or lower domestic inflation than we currently expect could lead to a stronger growth forecast in the West Bank &
Gaza, while a deterioration in political conditions and/or higher inflation will have the opposite impact on our forecast.
• Any sustained punitive economic measures imposed by Israel that further constrain exports and imports or disrupt governmental revenue
flows would pose downside risks to our forecasts for growth and fiscal dynamics.
• Popular discontent, either with Israel or the fractured Palestinian leadership, could lead to widespread social unrest and increased militancy,
thereby undermining growth prospects of the West Bank & Gaza and weighing on the territories' political risk profile.
MACROECONOMIC FORECASTS (WEST BANK & GAZA 2021-2024)

Indicator 2021 2022e 2023f 2024f
Nominal GDP, USDbn 14.6 17.7 19.2 20.3
Real GDP growth, % y-o-y 7.2 3.9 3.0 2.2
Consumer price inflation, % y-o-y, eop 1.3 4.1 2.6 2.1
Exchange rate USD per USD, eop 1.00 1.00 1.00 1.00
Budget balance, % of GDP -6.5 -1.0 -2.9 -3.2
Current account balance, % of GDP -12.2 -9.7 -7.1 -4.6
Risk Summary
Economic Risk
Both the Palestinian Authority and Hamas are reliant on external aid to support their budgets, and while the Palestinian Authority (PA) has made
efforts to reduce its dependence on donors, we do not expect this dynamic to fundamentally shift in the foreseeable future, as long as Israeli
restrictions persist. Moreover, a gradual decline in external aid will continue to see the PA accumulate arrears to the public and private sector, which
will drag on economic activity. The precarious finances of both factions mean that the reconstruction of the Gaza Strip, which saw extensive
damage from Israel's 'Operation Protective Edge' in the summer of 2014 and the conflict in May 2021, will continue to face delays.
Political Risk
The future of governance in the West Bank and Gaza has become extremely uncertain. Mutual suspicions between the rival Fatah (controlling the
Palestinian Authority) and Hamas factions remain elevated, and the unity government formed in 2014 failed in December 2018. With divisions
between both sides persisting and Israel likely to retain a relatively hawkish stance toward the Palestinian Territories, especially with the return of
the far right-wing coalition to government, the chances of a negotiated peace settlement with Israel look increasingly slim in the coming quarters.
While recent reports of US-led talks on a potential Saudi-Israel normalisation deal have suggested that Israel may be expected to make
concessions to the Palestinians, this is unlikely to significantly alter the status quo in the territories over the short term, and we do not expect the
Biden administration to take a significantly different stance on the issue than its predecessors.
Economic SWOT
• Economic activity has evolved in a way that circumvents many • Shortfalls in donor funding have a major impact on the fiscal
Israeli restrictions. budget of the Palestinian Authority, feeding through an
• The government has created an environment of relative accumulation of arrears.
macroeconomic stability in recent years. • Restrictions on imports of dual-use items (those with both
military and civilian applications) prevent the rapid
development of fixed investment.
• Several private equity and venture capital investors have shown • Withholdings of Palestinian Authority tax funds by the Israeli
interest in the Palestinian Territories. government do significant harm to the Palestinian economy,
• Reform of the tax administration with technical assistance from which happened over January-October 2020, and since January
developed markets may make the Palestinian Authority less 2023.
reliant on donor aid in the future. • The Palestinian Territories are dependent on Israel for supplies
• The agreement between the Palestinian Authority, Egypt and of utilities such as electricity and water, and the resolution of
Israel to develop and extract gas from the Gaza Marine gas field any supply problems will depend on Israeli cooperation.
would generate economic benefits for the West Bank and Gaza. • An escalation in violence with Israel threatens the permits of
Palestinians working in Israel, which could lead to higher
unemployment and worsening living conditions in the West
Bank and Gaza.
Political SWOT
• Former Palestinian Authority administrations have created a • The US, Canada, most Western European countries and Japan
relatively robust institutional framework that will allow the continue to withhold recognition of Palestine, thereby
government to operate with relative efficiency and autonomy. constraining the West Bank and Gaza’s international standing
• The recognition of Palestine as a state by Saint Kitts and Nevis somewhat.
in 2019, the 138th market to do so, is part of an international • The policies of Palestinian political authorities are heavily
trend that we may see continuing over the next decade. influenced by the actions of Israel, whose government is
relatively uncompromising in its foreign policy.
• High youth unemployment of 35.7% in Q223 suggests that the
risk of unrest is elevated.
• Palestinian President Mahmoud Abbas' term expired in 2010,
but new elections have been repeatedly delayed and few public
steps have been taken to promote a successor to the 87-year
old Abbas.
• Tensions will remain elevated with Israel and between Hamas
and Fatah, which will lead to sporadic conflicts and periods of
instability.
• Qatar's government has begun to increase its diplomatic and • Unresolved differences have derailed progress in every attempt
financial support to the Palestinian Territories in recent years. by rival Fatah and Hamas factions to achieve a reconciliation.
• Growing support within the international community for the These divisions could be exacerbated if the elections go ahead.
Palestinian cause could bring about increased pressure on • Widespread discontent, a lack of political progress towards
Israel to remove restrictions on movement of goods and people elections and plans to reduce the number of public sector
in and out of the Palestinian Territories. employees could lead to renewed public protests.
• Discontent with the Palestinian Authority's response to Israel's
increase in raids in the West Bank is leading to the emergence
of young armed groups, which heightens security risks.
• Persistent fiscal strains threaten Palestinian authorities' reliance
on the provision of public sector jobs to maintain popular
support.
Economic Outlook
Resilient Israeli Demand Will Support Growth In The West Bank And Gaza In H223
Key View
• We revised up our forecast for real GDP growth in the West Bank and Gaza from 2.7% to 3.0%.
• Our revision hinges on our expectation of more resilient growth in Israel, which we believe will support Palestinian employment and exports
more than previously anticipated in H223.
• Risks are to the downside, as a deterioration in West Bank and Gaza’s security environment would weigh heavily on headline growth.
We have opted to revise up our forecast for the West Bank and Gaza’s (WBG) 2023 real GDP growth from 2.7% to 3.0%. Our new
forecast follows our more bullish view on Israel’s growth outlook, and puts us in line with the IMF, which similarly expects that the Palestinian
territories will grow by 3.0% in 2023. Still, this will remain well below the Palestinian territories’ 2010-2019 average growth of 4.3% (see chart
below).
Growth Will Remain Below Trend In 2023, Despite Upward Revision

WBG - Real GDP Growth, %
f = BMI forecast. Source: PCBS, BMI
Stronger growth In Israel will support economic activity in the Palestinian territories more than previously expected in
H223. Indeed, we recently opted to revise up our forecast for Israeli growth in 2023 from 3.1% to 3.4% on resilient domestic demand and a rosier
external demand outlook, supporting Israeli exports. Higher growth in Israel will provide more support to economic activity in WBG than previously
expected in H223 through two main channels:
First, Palestinian employment in Israel (and Israeli settlements) will be stronger than previously expected. In Q223, Palestinian
unemployment ticked down slightly from 25.2% in Q123 to 24.7%, due to an increase in Palestinians employed in Israel (and Israeli settlements) by
7.5% q-o-q from 156,200 in Q123 to 167,900 in Q223 (see chart below, left). This mirrored resilient Israeli growth in H123 due to robust fixed
capital formation (9.9% y-o-y), particularly construction (14.4% y-o-y).
Increase In Palestinians Employed In Israel Will Support Household Spending In H223

WBG - Palestinians Employed In Israel & Settlements (LHC) & Average Daily Wage By Sector, ILS (RHC)
Source: PCBS, BMI
The Israeli construction sector employs over 60.0% of the Palestinian expat workforce. As a result, this bolstered Palestinian employment in H223,
and we now expect it provide more support than previously anticipated in H223. Against the backdrop of easing inflation, this will buoy household
spending over the remainder of the year, particularly given that the average wage earned by Palestinian workers in Israel is significantly higher than
in the Palestinian territories (see chart above, right).
Second, stronger demand in Israel will offer more support to Palestinian exports than initially anticipated. Indeed, 80.5% of the
Palestinian territories' exports are absorbed by Israel (see chart below, left), and of a significant chunk is oriented toward the Israeli construction
industry, eg, building stone (11.9% of exports). As with Palestinian employment, we therefore believe that exports will see more support than
previously expected in H223.
Resilient Israeli Demand Will Support Palestinian Exports, Weaker Shekel Will Weigh On Non-Israeli Imports
WBG - Exports By Destination, % of Total (LHC) & Israel - ILS/USD (RHC)
Source: OEC, BoI, BMI
Moreover, while increased Palestinian incomes will also support households’ import demand, we expect non-Israeli imports (around 40.0% of the
Palestinian territories' imports) to remain subdued. This is due to persistent weakness in the Israeli shekel, which will increase the cost of non-Israeli
imports. Indeed, we now expect that the Israeli shekel will remain under pressure for longer in H223 (see chart below, right), trading at an average
of ILS3.65/USD in 2023, weaker than our previous forecast of ILS3.58/USD.
That said, this will still represent a slowdown from growth of 3.9% in 2022. This is for three main reasons. First, despite our upward revision
to Israeli 2023 growth, which we expect will decelerate sharply from 6.5% in 2022. As such, we expect that the number of Palestinians employed in
Israel is unlikely to recover to the 2022 average of 194,000, thereby capping households’ access to higher incomes, and weighing on Israeli
demand for Palestinian exports relative to 2022.
Elevated Inflation And Tighter Monetary Policy Will Weigh On Household Spending
WBG - Inflation, % (LHC) & Bank Deposit Rates By Currency, % (RHC)
Source: PCBS, BMI
Second, an elevated cost of living will weigh on household spending. Despite easing, we expect that domestic inflation will remain sticky, averaging
3.4% in 2023 – above the 2010-2019 average of 1.9%, and easing only slightly from 3.7% in 2022 (see chart above, left). This will erode
households’ purchasing power and weigh on spending. Meanwhile, tight monetary policy in Israel, the US and Jordan will see higher bank rates on
Israeli shekel, US dollar and Jordanian dinar deposits (the main currencies in the Palestinian territories), encouraging saving (see chart above, right).
Constrained Public Spending, Elevated Political Risks Will Weigh On Consumption, Investment
WBG - Clearance Revenue, USDm (LHC) & MENA - Short-Term Political Risk Index (STPRI) 2023 Score (RHC)
Note: LHC: * - Positive/negative sum = funds withheld/transferred. RHC: Scores out of 100; higher score = lower risk. Source: MoF, BMI
Third, constrained government spending and elevated security risks will weigh on private consumption and investment. The Palestinian Authority’s
(PA) ongoing fiscal stress, exacerbated by Israeli deductions from PA clearance revenue (i.e. revenue collected by Israel on the PA’s behalf), will limit
the PA’s capacity to pay public sector salaries or to ramp up public investment (see chart above, left). Meanwhile, elevated security risks will
continue to discourage private investment in the Palestinian territories (see chart above, right)
Growth Will Slow Further In 2024

WBG - Real GDP Growth, %
We think that growth will slow further to 2.2% in 2024 (see chart above). This is a slight downward revision from 2.4% previously, mainly due
to our expectations of slower growth in Israel in 2024, which we have similarly revised down from 3.3% to 3.1%. This will feed through weaker
demand for Palestinian exports and cap spending amid lower Palestinian employment in Israel. Meanwhile, easing inflation and an expected
appreciation of the Israeli shekel will support import demand.
Risks to our outlook are skewed to the downside. Growth in the Palestinian territories could come in weaker than expected if there is a
significant deterioration in the security environment. This could occur if the Israeli government steps up military operations in the territories,
revokes Palestinian work permits, or withholds more of the PA’s clearance revenue than currently expected.
2023 GROWTH OUTLOOK

Forecast 2022 2023 Notes
Real GDP Growth,
3.9 3.0 Weaker private consumption and investment activity will weigh on growth.
%
Private Private consumption growth will ease due to the impact of lower Palestinian employment in Israel, sticky inflation and higher bank
17.9 4.5
Consumption deposit rates driven by tighter monetary policy in Israel, the US and Jordan.
Government
-2.5 -0.1 Government consumption will remain constrained due to the Palestinian Authority's (PA) fiscal distress.
Consumption
Fixed Capital
2.8 0.8 Limited public investment and higher security risks will weigh on overall investment activity.
Formation
Net Exports -13.0 -1.7 Imported inflation will weigh on demand for Israeli goods, while easing demand in Israel will weigh on Palestinian exports.
Note: Numbers reflect percentage point contribution to growth unless mentioned otherwise. Source: BMI
Monetary Policy Outlook
West Bank and Gaza's Inflation Will Remain Elevated In H223, Return To Trend In 2024
Key View
• We forecast that average inflation in the West Bank and Gaza will ease from 3.7% in 2022 to 3.4% in 2023 and 1.6% in 2024.
• This represents an upward revision from 3.2% previously, as price growth remains sticky, and we think that elevated inflation in Israel, a weaker
Israeli shekel and robust Palestinian employment in Israel will put more upward pressure on prices than we had previously expected in H223.
• That said, we still expect that inflation will ease gradually in H223 and into 2024 due to easing global food prices, tighter monetary policy and
weaker imported inflation.
• Risks are to the upside, and include the weaker-for-longer Israeli shekel, which would drive imported inflation, and higher food and energy
prices than we currently forecast.
We forecast that inflation in the West Bank and Gaza (WBG) will ease from an average of 3.7% in 2022 to 3.4% in 2023 and 1.6% in
2024. Price growth will thus remain well above the Palestinian territories' 2010-2019 average of 1.6% this year, before returning to trend next year
(see chart below).
Stickier-than-expected inflation prompted us to slightly increase our 2023 forecast from 3.2% previously. This is for three
reasons. First, price growth continues to remain fairly sticky. After averaging 4.1% y-o-y in Q123, remained elevated at 3.5% y-o-y in Q223.
Inflation Will Ease Only Slightly In 2023, Return To Trend In 2024

WBG - Inflation, %
After easing sharply from 3.9% y-o-y in May 2023 to 3.1% y-o-y (-0.3% m-o-m) in June, the latest July Consumer Price Index (CPI) reading showed
inflation accelerating to 3.6% y-o-y (0.1% m-o-m). This was partly due to base effects, but also reflected increase in food and housing costs (see
chart below). As a result, in Q323, we think that inflation will remain elevated, easing only slightly to 3.4% y-o-y.
Food Costs Will Remain Main Driver Of Inflation

WBG - Inflation, % & Components, PP
Source: PCBS, BMI
Second, we are now factoring in higher imported inflation than previously expected in H223. Since our last update in April, we have revised up our
2023 forecast for average inflation in Israel from 3.6% to 4.2% (see chart below, left). This, in turn, will feed through to a higher prices of imported
goods from Israel (representing around 60.0% of the territories' imports).
Relatedly, persistent weakness in the Israeli shekel prompted us to similarly revise our forecast for the currency from an average of ILS3.58/USD to
ILS3.65/USD, as we now think the currency remain under pressure for longer in H223 (see chart below, right) amid lingering political uncertainty
around the Israeli government's judicial reforms. As a result, this will push up the relative cost of non-Israeli imports.
Elevated Israeli Inflation, Weaker Israeli Shekel Will Push Up Domestic Prices
Israel - Inflation, % (LHC) & ILS/USD (RHC)
f = BMI forecast. Source: CBS, BoI, BMI
Third, we think that the Palestinian labour market will prove more resilient than we had initially anticipated in H223. Indeed, in Q223, the territories'
unemployment rate ticked down slightly to 24.7% from 25.2% in Q123. This was driven mainly by an increase in the number of Palestinians
employed in Israel (and Israeli settlements), which rose from 156,000 in Q123 to 167,900 in Q223 (see chart below, left). We expect that this will
provide more support to households' spending than previously expected, putting upward demand-side pressure on local prices.
Robust Palestinian Employment In Israel Will Support Household Incomes

WBG - Unemployment Rate, % (LHC) & Palestinians Employed In Israel (RHC)
Source: PCBS, BMI
That said, we still expect that inflation will trend down gradually over the remainder of the year and into 2024. After averaging 3.8%
y-o-y in H123, we forecast that inflation in the Palestinian territories will ease to an average of 3.0% y-o-y in H223, ending the year at 2.6% y-o-y.
This is for three main reasons.
First, we expect agricultural commodity prices will continue to trend down in H223, putting downward pressure on food price inflation (currently
the largest single contributor to headline inflation in the Palestinian territories, representing 35.0% of the CPI basket). Indeed, since our last update
in April, our Commodities team revised down their forecast for average Wheat prices (a proxy for food prices) in 2023 from USc720/bushel to
USDc671/bushel (see chart below, left), 26.3% lower than the 2022 average.
Lower Agricultural Commodity Prices, Tighter Monetary Policy Will Weigh On Price Growth
Global - Wheat Price, USc/bushel (LHC) & WBG - Bank Deposit Rates By Currency (RHC)
Source: HWWI, PCBS, BMI
Second, we believe that the lagged impact of tighter monetary policy in Israel, Jordan and the US will increasingly feed through to domestic higher
bank rates on deposits denominated in the Israeli shekel, Jordanian dinar and US dollar (the three main currencies used in the Palestinian
territories) (see chart above, right). As a result, we this will increasingly discourage spending and incentivise saving and discourage spending,
putting downward pressure on prices.
Price Growth In The Palestinian Territories Will Track Easing Inflation In Israel
Israel & WBG - Inflation, %
Source: BoI, PCBS, BMI
Finally, despite the revisions to our Israeli shekel and inflation forecasts, we maintain our view that inflation in Israel will tick down in H223, and that
the shekel will pare back some of its losses by end-2023, as we anticipate a modest improvement in investor sentiment after a scaled-back version
of the government's judicial reform is passed in Q423. As a result, this will ease the impact of imported inflation on domestic prices (see chart
above). We believe that these dynamics will continue to play out in 2024, compounded by easing growth in Israel, which will weigh on Palestinian
employment in the country and therefore on spending.
Risks are skewed to the upside. Upward supply-side price pressures following the collapse of the Black Sea Grain Initiative and India's recent
decision to restrict rice exports could see the territories' food inflation remain higher for longer. Moreover, higher oil prices in H223, or a weaker
Israeli shekel than we currently anticipate, could feed through higher imported inflation in the territories.
Fiscal Policy And Public Debt Outlook
West Bank And Gaza Will Keep Accumulating Arrears To Cover Wider Fiscal Deficits In
2023 And 2024
Key View
• We expect that the West Bank and Gaza’s fiscal deficit (including aid) will widen from 1.0% of GDP in 2022 to 2.9% of GDP in 2023 and 3.2% of
GDP in 2024.
• Government spending will continue to outstrip total revenues due to a decline in clearance revenue, domestic tax revenue and subdued aid
flows.
• Against limited access to domestic and foreign debt, the Palestinian Authority will continue to accumulate arrears to cover its fiscal shortfall.
• Given the Palestinian Authority’s dependence on external revenue sources, a deterioration in relations with Israel (or international donors)
would weigh heavily West Bank and Gaza's fiscal position.
We forecast that the West Bank and Gaza (WBG)'s fiscal deficit (including external aid) will widen from 1.0% of GDP in 2022 to 2.9%
of GDP in 2023. This is narrower than the territories’ 2010-2019 average deficit of 4.2% of GDP (see chart below).
WBG's Fiscal Deficit Will Widen In 2023

WBG - Fiscal Balance, % of GDP
f = BMI forecast. Source: Palestinian Ministry of Finance, BMI
Our forecast hinges on our expectations of a decline in total revenue from 27.3% of GDP in 2022 to 25.3% of GDP in 2023 (see chart
below, left). This is because WBG's nominal GDP will grow faster than revenue amid weaker clearance revenue (collected by Israel and transferred
to the PA) and domestic tax revenue.
Revenue Will Fall Below Trend

WBG - Total Revenue, % of GDP (LHC) & Components, USDm (RHC)
We think that clearance revenue (64.1% of total revenue) will decline in 2023. This is for three reasons.
1. Higher imported inflation will weigh on import demand, reducing revenue collected from VAT and customs duties on goods
imported via Israeli ports (69.0% of total clearance revenue).
2. Slower Israeli growth will weigh on income tax from Palestinians working in Israel, who earn higher salaries than workers in WBG.
3. We think the right-wing Israeli government will withhold a greater portion of clearance revenue funds as a punitive measure against
the PA.
Lower Customs Duties And Income Tax Will Weigh On Revenue

WBG - Clearance Revenue By Component (LHC) & Average Daily Salary By Sector, ILS (RHC)
Source: Palestinian Ministry of Finance, Palestinian Central Bureau of Statistics, BMI
We expect domestic tax revenue (22.2% of total revenue) will also decline in 2023. Weaker growth in WBG will reduce revenue from
income tax (24.0% of tax revenue) and VAT (45.0%). Meanwhile, slower Israeli growth will reduce Palestinian employment in Israel (see chart below,
right), denting household spending and consumption tax revenue.
Withheld Clearance And Fewer Palestinian Workers In Israel Will Weigh On Revenue
WBG - Palestinian Workers In Israel & Settlements (LHC) & Clearance Revenue, USDm (RHC)
* - Positive/negative sum = funds withheld/transferred. Source: Palestinian Central Bureau Of Statistics, Palestinian Ministry of Finance, BMI
Weaker import demand will also reduce revenue from customs duties (29.0% of tax revenue) collected directly by the Fatah-led PA (mainly on
imported vehicles) and Hamas (on imports via the Egypt-controlled Salah al-Din gate). Finally, we see limited scope for a widening of WBG’s tax
base in 2023, as the PA will remain unable to raise significant revenue from the Gaza Strip (due to the political split between Fatah and Hamas), East
Jerusalem or Area C of the West Bank, due to Israeli restrictions.
Aid Flows Will Remain Insufficient To Cover Entire Fiscal Deficit

WBG - Aid By Component, % of GDP (LHC) & Budgetary Support By Donor, USDm (RHC)
Aid flows from international donors will remain subdued in 2023. External aid declined significantly from 10.9% of GDP in 2013 to just
2.0% in 2022, driven by a sharp fall in PA budgetary support, in part due to donors' frustration with the PA (see chart above, left). In particular,
support from Arab donors collapsed from USD876.3m in 2019 to USD196.0m in 2022 (see chart above, right).
Admittedly, aid flows grew by 14.4% in 2022, driven by an increase in funding through the European Union’s (EU) PEGASE mechanism and United
States (US) funding for Palestinian hospitals. That said, aid flows will unlikely recover much more ground, and will hover around 2.0% of
GDP in 2023.
Public Sector Wage Bill Will Continue To Dominate Spending

WBG - Total Expenditure, % of GDP (LHC) & Components, USDm (RHC)
* - Sums deducted from clearance revenue to satisfy debts to Israeli utilities providers. f = BMI forecast. Source: Palestinian Ministry of Finance, BMI
Revenue will be outstripped by government spending, which we expect to hold steady at 30.2% of GDP in 2023 (see chart above, left).
This will be underpinned by a large public wage bill (45.1% of total expenditure) (see chart above, right). Indeed, in March 2023 the PA agreed to
further wage increases to end strikes by labour unions. This will be compounded by significant public pension transfers.
Around one third of PA expenditure goes to Gaza and East Jerusalem, mainly on wages (the PA pays salaries of duplicate personnel in Gaza, as it
refuses to pay the salaries of Hamas-appointed civil servants), social benefits, and payments for Israeli-provided utilities. Spending by the Hamas-
run authority in Gaza will be dominated by partial public sector salary payments (with aid from Qatar) and military activities (reportedly supported
by Iran). Most other key public services will continue to be provided by international donors, mainly through UN agencies.
Arrears Accumulation Will Remain Main Driver Of Increasing Public Debt

WBG - Total Government Debt, % of GDP Excl. Arrears (LHC) & Incl. Arrears (RHC)
The territories’ relatively low government debt-to-GDP reflects its limited access to domestic and international debt. Domestic
bank financing will remain limited, as banks cap their lending to the PA to comply with prudential limits, and the PA will remain unable to tap
international markets. For these reasons, government debt (excluding arrears) will fall from 20.0% of GDP in 2022 to 18.2% of GDP in 2023 (see
chart above, left).
However, this belies the extent of WBG’s fiscal stress, made evident by the PA’s large stock of arrears. Arrears represent 48.6% of the
PA's total liabilities (see chart above, right), mainly arrears against the public pension fund and public sector salary payments (see chart below,
right). We think the PA will continue to accumulate arrears to cover its fiscal shortfall, with government debt (including arrears)
increasing from 38.9% of GDP to 40.1% of GDP in 2023.
PA Will Continue To Accumulate Arrears To Cover Persistent Fiscal Shortfalls

WBG - Arrears, USDm (LHC) & By Sector (RHC)
We expect these dynamics will continue to play out in 2024. Total expenditure will hold steady at just over 30.0% of GDP, while slower real
GDP growth in 2024 will see total revenue will fall to 27.0% of GDP. With aid flows muted, WBG’s fiscal deficit will widen to 3.2% of GDP in 2024,
obliging the PA to accumulate more arrears, pushing up government debt to 41.9% of GDP.
Risks to our outlook are firmly to the downside. The PA’s dependence on external revenue sources means that an uptick in clearance
revenue deductions or a further decline in aid flows, perhaps due to an escalation in tensions with Israel (or international donors), would weigh
heavily on WBG's fiscal position, accelerating the PA's accumulation of arrears, sapping significant liquidity from the domestic economy.
10-Year Forecasts
Long-Term Growth Outlook Far Below Potential

Key View: We forecast steady, moderate real GDP growth in the WBG based on our assumption that Israeli restrictions on the movement of goods
and people into and out of territories will not change significantly over our 10-year forecast period. These hindrances will negatively impact gross
fixed capital formation, exports and government spending, leaving private consumption to continue underpinning the economy going forward.
We expect moderate long-term growth rates for the economy of the West Bank & Gaza (WBG); real GDP is forecast to expand by 2.7% annually on
average between 2023 and 2032. Israeli policies toward the Palestinian Territories will continue to have a substantial impact on the trajectory of
the Palestinian economy, with an easing of restrictions (or negotiated settlement) expected to bring about sustained double-digit growth, while a
tightening of policy (or refusal to loosen restrictions) could lead to lower rates of expansion. Our core view remains that a final resolution to the
Israeli-Palestinian conflict will remain off the cards for the foreseeable future; as a result, we do not expect a sustained growth boom over our
forecast period.
Far Below Potential

West Bank & Gaza - Nominal & Real GDP Growth
e/f = BMI estimate/forecast. Source: Palestinian Monetary Authority, BMI
Private consumption will expand at a relatively healthy rate (but far lower than during the boom years between 2007 and 2012), averaging 4.0%
annually to 2032. Household spending is the backbone of the Palestinian economy, remaining above 85.0% of GDP. The Palestinian Territories'
accelerating population growth and its highly youthful demographic profile will keep consumer demand elevated, in our view.
Highly Youthful Population

West Bank & Gaza - Population By Age Group, % of total
Source: UN, BMI
The high rate of unemployment, if not addressed, will restrict consumers' ability to spend over the long term. Further actions by the Israeli
government will be necessary to bring unemployment down further, but because we see little political will to make substantial concessions, a
marked increase in employment levels is outside our core scenario. Households' ability to purchase goods and services will be constrained as a
result.
Fiscal Spending Subject To Uncertain Aid Flows
In our view, government spending will become more significant going forward, but the Palestinian Authority (PA) remains reliant on donor aid. The
IMF and World Bank have affirmed that the PA has been successful in establishing the institutions necessary for a functioning state, including
revenue and expenditure management. Moreover, the PA is continuing to reform its tax and customs administration in cooperation with the IMF,
which will likely lead to an increase in tax revenues over the coming years.
We note that foreign aid flows will be crucial to sustaining fiscal expenditures over the medium term. A fiscal crisis in September 2010 led to a flurry
of cash inflows, particularly by Arab states that had not met their funding commitments, but donors have been slower to meet their pledges since
the start of 2011. In 2019, Qatar offered the Palestinian Territories over USD300mn in aid, to partially offset the halted tax transfers from
Israel. Major variances between aid commitments and actual cash transfers could affect not only government spending but also private
consumption, as public employees often see postponements to the payments of their salaries, with an accumulation of arrears by the PA.
Fixed Investment And Export Potential Dependent On Israeli Policies
Fixed investment will continue to be constrained, in large part due to Israeli restrictions on the movement of goods and people within the West
Bank, and construction activity, as well as its tight border controls in the Palestinian Territories. Israeli control of all land that is neither part of
Palestinian towns nor 'populated' rural areas known as Area C (see map), and the many checkpoints that separate population centres, have
constrained those key sectors, as the amount of time and costs of physically moving goods are prohibitively high. We project a long-term growth
rate in gross fixed capital formation (GFCF) of 4.6% on average per year over 2023-2032, whereas an end to restrictions could easily see growth
rates of over 20% per year.
Fragmented
West Bank & Gaza - Classification Of Land In West Bank
Source: BMI
The IMF estimates that due to these internal restrictions the share of GDP produced by the tradable goods, manufacturing and agriculture sectors
has declined to under 20%. Consequently, these constraints have resulted in a disproportionate rise in non-tradable sectors. The construction and
services industries, in particular, have been less hindered by the aforementioned barriers to physical movement and thereby take a greater share
of GDP.
We caution that even construction growth has fallen below potential due to Israeli import restrictions and red tape. Private imports of machinery
and equipment classified as dual-use (materials that have both civilian and military applications) are disallowed, and these rules are enforced very
strictly for the Gaza Strip. Furthermore, Israel prohibits construction in approximately 70% of Area C, and building in the remaining 30% is
obstructed by extremely high bureaucratic obstacles that impede the distribution of building permits. Thus, construction is limited to already-
developed population centres.
These factors will constrain the Palestinian Territories' attractiveness as a destination for foreign direct investment (FDI). The Palestinian Territories'
relatively small population and low purchasing power would only be attractive for foreign capital if the business environment was relatively open
and export potential was high, in our view. However, given obstacles to construction and strict border controls, we see little scope for FDI to boost
the Palestinian economy, unless restrictions are eased. Our anticipation of limited expansion in GFCF, combined with relatively weak domestic
demand, bode poorly for headline GDP growth rates in the WBG over the medium-to-long term.
Restrictions Have Impact In Both Directions
Exports and imports are also dependent on Israeli policies. International pressure has prompted Israeli officials to remove some of their border
limitations, but Israel's overall policy framework continues to constrain export potential, particularly in the context of the ongoing naval and air
blockade that isolates the Gaza Strip. While Gaza's export potential increased slightly following the ousting of former Egyptian president Hosni
Mubarak (who had cooperated with Israel in isolating the Gaza Strip from 2007 to 2011), the Rafah border crossing saw only a modest uptick in
traffic in 2012. The ousting of former Egyptian president Mohamed Morsi in 2013 placed the military back into a dominant role in Egypt, creating
further uncertainty for Gaza over the following seven years.
As the West Bank is landlocked and does not have its own international airport, goods must first pass through Israel and then to other markets. This
significantly slows the flow of goods to external markets. The PA petitioned Israel to allow the construction of an international airport within its
territory, but there has been no major progress reported since.
Imports will also be limited under current Israeli policy. As stated above, dual-use items are not allowed, which include many capital goods. Import
restrictions are strongly tied to the underperformance in export and GFCF growth, as they limit the range of goods and services that can contribute
to the territories' economic activity. As a result, we note that import growth is limited by the same factors that inhibit exports, and that a lifting of
restrictions would result in high rates of growth for both.
LONG-TERM MACROECONOMIC FORECASTS (WEST BANK AND GAZA 2023-2032)

Indicator 2023f 2024f 2025f 2026f 2027f 2028f 2029f 2030f 2031f 2032f
Nominal GDP, USDbn 19.2 20.3 21.7 23.1 24.6 26.3 28.1 30.2 32.4 34.9
Real GDP growth, % y-o-y 3.0 2.2 2.8 2.9 2.8 2.8 2.8 2.7 2.6 2.5
GDP per capita, USD 3,567 3,694 3,857 4,013 4,188 4,378 4,584 4,820 5,076 5,355
Population, mn 5.37 5.49 5.62 5.75 5.87 6.00 6.13 6.26 6.39 6.52
Consumer price inflation, % y-o-y, ave 3.4 1.6 2.0 1.6 1.8 1.9 2.0 2.0 2.0 2.0
Exchange rate USD per USD, ave 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Current account balance, % of GDP -7.1 -4.6 -4.7 -3.3 -2.0 -1.0 0.3 1.6 2.9 4.3
DISCLAIMER
Our long-term macroeconomic forecasts are based on a variety of quantitative and qualitative factors. Our 10-year forecasts assume in most cases that growth eventually
converges to a long-term trend, with economic potential being determined by factors such as capital investment, demographics and productivity growth. Because quantitative
frameworks often fail to capture key dynamics behind long-term growth determinants, our forecasts also reflect analysts’ in-depth knowledge of subjective factors such as
institutional strength and political stability. We assess trends in the composition of the economy on a GDP by expenditure basis in order to determine the degree to which
private and government consumption, fixed investment and the export sector will drive growth in the future. Taken together, these factors feed into our projections for
exchange rates, external account balances and interest rates.
Source: BMI
Political Outlook
West Bank And Gaza Unlikely To See Full Fatah-Hamas Reconciliation, Unity Government
Key View
• We believe that Fatah-led Palestinian Authority (PA) and Hamas are unlikely to fully reconcile or form a new unity government over the short
term. This is due to the parties' irreconcilable platforms and demands, and Israeli opposition.
• That said, a significant deterioration in territories' political stability is unlikely, as Israel has an interest in preventing the PA's collapse in the West
Bank.
• A significant weakening of the PA, or harsh Israeli sanctions amid full Fatah-Hamas reconciliation, pose downside risks to the territories' growth
and stability.
We expect that dialogue between the Fatah-led Palestinian Authority (PA) and Hamas is unlikely to translate into full
reconciliation of a new unity government. On July 30 2023, PA President Mahmoud Abbas met with Hamas leader Ismail Haniyeh in Egypt,
where they agreed to form a ‘reconciliation committee’ and engage in further talks. In our view, this Fatah-led dialogue reflects efforts to contain
President Abbas’ (and the PA’s) rising unpopularity in the West Bank, rather than a genuine will to reconcile.
Indeed, according to a June 2023 survey, some 80.0% of Palestinians were dissatisfied with President Abbas’ performance (see chart below, left). In
part, this is a result of the PA’s ongoing security coordination with Israel, perceived as tacit support for Israeli operations in the West Bank. Together
with arrests of Hamas, PIJ and other local militants, this has fed a perception of the PA as an obstacle to Palestinian unity (see chart below, right).
President Abbas, PA Increasingly Unpopular Among Palestinians

WBG - Public Opinion Poll, 7-11 June 2023
Note: DK/NA = Don't Know/No Answer. Source: Palestinian Centre for Policy and Research, BMI
While Fatah-Hamas talks may produce some goodwill gestures (such as prisoner releases), tensions will likely remain elevated.
Indeed, talks are unlikely to see President Abbas regain the confidence of the Palestinian public, and will likely stop short of full reconciliation. This
is reflected in recent polling, with 81.0% of Palestinians believing that full reconciliation is unlikely to take place (see chart below). This is for four
main (domestic) reasons.
First, Fatah and Hamas have irreconcilable platforms. Fatah is a secular party with a preference for political settlement with Israel, while Hamas is an
Islamist group that advocates for armed struggle. Second, key demands are unlikely to be satisfied, with the PA reluctant to sever security ties with
Israel, and Hamas unwilling to disarm or recognise Israel.
Full Reconciliation Is Unlikely, Palestinian Public Concurs

WBG - Public Opinion Poll, 7-11 June 2023
Note: DK/NA = Don't Know/No Answer. Source: Palestinian Centre for Policy and Research, BMI
Third, Fatah and Hamas will seek to preserve their political dominance in their respective territories. For the Fatah-led PA, this would mean avoiding
new elections, given that polls suggest a Hamas victory. Meanwhile, Hamas' military wing would likely obstruct a prospective unity government
from fully administering the Gaza Strip. Finally, a unity government would oblige the PA to absorb tens of thousands of Hamas civil servants. Given
the PA’s strained finances, this would pose a major administrative obstacle to reconciliation.
To varying degrees, these four key issues seriously undermined (or led to the collapse of) the two previous 'unity' governments (formed in 2007
and 2014). There is little reason to believe that a third unity government would be any more successful, as the same underlying tensions and
challenges would quickly resurface.
Palestinian Territories Will Remain One Of The Riskiest MENA Markets

WBG - Short-Term Political Risk Index
Note: The Short-Term Political Risk Index consists of four components, including 'security/external threats'. Scores out of 100; higher score = lower risk. Source: BMI
For these reasons, we have opted to hold our Short-Term Political Risk Index (STPRI) score unchanged at 27.5 (out of 100.0) (see
chart above, left). This will see the Palestinian territories remain one of the riskiest markets in the MENA region (see chart above, right).
On top of this, we believe that Israel will seek to prevent full reconciliation to contain Hamas’s growing influence in the West
Bank. Israel is unlikely to tolerate any political arrangement that includes Hamas unless the group disarms and recognizes Israel’s right to exist.
Given that Hamas is unlikely to be willing to make such concessions, Israel would likely seek to disrupt reconciliation efforts by threatening to
impose sanctions on the territories.
This may include withholding clearance revenue (64.1% of PA revenue, collected by Israel on the PA’s behalf) (see charts below), stepping up
settlement activity, and launching military operations. We believe the threat of sanctions will discourage the PA from deeper engagement with
Hamas. Meanwhile, we think that Hamas will similarly seek to avoid further economic sanctions, particularly given recent protests (on July 30 and
August 7) against its rule in Gaza.
Israel Will Continue To Use Clearance Revenue As Leverage Over PA

WBG - Total Revenue, & Components, USDm (LHC) & Clearance Revenue, USDm (RHC)
Note: * - Positive/negative sum = funds withheld/transferred. Source: MoF, BMI
While full reconciliation is unlikely, we do not expect a significant shift in the status quo (i.e. continued Fatah-led PA rule in the
West Bank) over the short term. We believe that Israel will prop up the PA. This is because the PA's collapse would oblige Israel to take over full
responsibility for the security and governance of Palestinians (and Israeli settlers) in the West Bank (see map below), and would allow Hamas or
other Islamist groups to exploit a potential power vaccum.
Indeed, on July 9, the Israeli security cabinet approved a financial and military assistance package to prevent the 'collapse' of the PA. Meanwhile,
while reports of prospective Saudi-Israel normalization talks have suggested that Israel would be expected to make concessions to the
Palestinians, the extent of such concessions remain unclear at this stage, and are unlikely to impact the status quo in the territories over the short
term.
Israel Will Remain Concerned About Destabilisation, Increased Hamas Presence In West Bank
Israel, West Bank & Gaza - Map Of Settlements
Source: UN OCHA, BMI
Risks To Outlook
A significant weakening of the PA (beyond that which Israel can prevent) would pose downside risks to territories’ growth and
political stability. This may occur if a surge in popular opposition to the PA prompts mass protests, or if violent clashes break out between PA
forces and Hamas/PIJ. Otherwise, this may occur if a succession crisis ensues following the death or incapacitation of 87-year old President Abbas
and triggers a disintegration of the PA.
If Fatah-Hamas dialogue bears fruit in the form a unity government, the implications would hinge on Israel’s response. If Israel
responds with heavy sanctions (or launches a military operation), this would weigh on the territories' economic and security environment (higher
probability). If Israel’s response was muted (lower probability), perhaps as a goodwill gesture as part of US-led normalization talks with Saudi Arabia,
this may allow for a modest improvement in the territories' political stability and economy.
Long-Term Political Outlook
Political Environment Will Remain Unstable Amid Plethora Of Challenges

Key View: Over the next decade, 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.
The political environment in the West Bank and Gaza (WBG) continues to operate along largely geographic fault lines dominated by the secular
Fatah party in the West Bank and the Islamist group Hamas in the Gaza Strip. The territories face significant domestic political obstacles, as the two
factions appear unable to unify on a permanent basis, as well as considerable challenges in the international political arena. Below, we present the
greatest internal and external challenges to stability, as well as a number of potential long-term scenarios.
Future Of The Palestinian Territories Uncertain

West Bank & Gaza - Long-Term Political Risk Score
Note: Scores out of 100; higher score = lower risk. Source: BMI
Challenges And Threats To Stability
Internal Threats
Lack Of Functioning Democratic Process: According to local law, the Palestinian leadership is chosen through democratic elections. However,
elections are long overdue. At the presidential level, Mahmoud Abbas's term as president should have ended in January 2009 or January 2010
(there are multiple conflicting laws governing this topic), but he remains in office. Both Hamas and Fatah must participate in the organisation of a
presidential election as each will have to oversee balloting in its respective area of control (the Gaza Strip and West Bank respectively), and Israel
would also have to support the event (as it controls the movement of people in the West Bank and East Jerusalem). All these factors pose risks to
the legitimacy of the Palestinian leadership. Abbas had promised in elections in mid-2021, but these were eventually postponed against the
backdrop of the May 2021 conflict. The formal reason behind the postponement of the elections is that Israel would not allow these elections to
take place in East Jerusalem.
Lack Of Geographical Continuity: The declining probability that a lasting reconciliation, and therefore unified leadership, can be achieved
bodes poorly for the medium-term prospects of the Palestinian Territories as a single entity. A Palestinian unity government was formed in June
2014, bringing together the WBG Strip under a single political authority for the first time since 2007. Yet, mutual suspicions between Fatah and
Hamas remain high, and the unity government was largely ineffective - before being dissolved by Abbas in June 2015. A further unity government
was dissolved in December 2018.
We note that maintaining cohesion among the Palestinian Territories will be extremely difficult. No state with discontinuous borders and separate
administrations has ever been able to hold onto both territories, as seen in the failed merger of Egypt and Syria into the United Arab Republic
(1958-1961), as well as the inability of Pakistan and East Pakistan (now Bangladesh) to remain one political entity. Without any movement towards
unity among the two Palestinian regions, the chances of a more formal split into two separate political entities will rise substantially.
Uncontrollable Militants: Growing assertiveness of Salafist militants, particularly in the Gaza Strip, and the emergence of new young armed
groups in the West Bank highlight the massive security challenges that the Palestinian leadership faces. Following an uptick in tensions between
Israel and Gaza militants since December 2010, Hamas agreed to two ceasefires in 2011. However, due to its inability to stop militant attacks on
Israeli soil, Israel considered the ceasefires to be broken, which did little to ease tensions. Other escalations between Hamas and Israel came in
November 2012, the summer of 2014 and in May 2021. Violent conflict is likely to resurface over the coming years.
Unfavourable Demographics And Employment Opportunities: Population growth in the WBG has accelerated, while economic
opportunities have languished. Their demographic profile is heavily skewed towards the young, with over 70% of the population under the age of
30. Real earnings have been stagnant, if not declining in recent years. According to official statistics, the unemployment rate in the two regions
stood at 23.4% in 2022.
External Threats
Israel: As a result of the Palestinians' inability to achieve statehood, either through negotiations or by petitioning the international community,
Israel continues to be a major player in the economy and politics of the WBG. From a political perspective, Israel has the power to exert a high
degree of influence, even in the domestic affairs of the Palestinians. As noted above, elections require Israel's cooperation in easing restrictions on
domestic travel so Palestinians can go to the polls. Furthermore, Israel is the custodian of a significant portion of the Palestinian Authority (PA)'s
funds and has, at times, denied access to those funds to apply pressure. This happened from February 2019 to October 2019, when customs
revenue transfers were halted due to a dispute over funds allocated to Palestinian martyrs. Israel also controls many of the Palestinian Territories'
borders, restricting the movement of people and goods into and out of the WBG Strip, as well as domestic travel. Most importantly, Israel is the
most influential entity in determining whether or not Palestinians can achieve independence and peace.
Iran And Syria: Iran's sphere of influence includes the Syrian regime of Bashar al-Assad and Hamas in the Gaza Strip, and the Islamic Republic has
provided Hamas with moral, financial and tactical support. A rift within the Iranian sphere of influence occurred in 2011 when Syrian forces cracked
down on the port city of Latakia and attacked Palestinian camps in the area during Assad's campaign to stamp out social unrest. Hamas objected
to these actions, which elicited a warning from Iran that future funding could be compromised if the former spoke out further against Assad.
Hamas subsequently came out and forcefully condemned President Assad's crackdown, and said that the group supported the uprising. More
symbolically, Hamas has also moved its headquarters out of Damascus. A loss of financial and diplomatic support from Assad and Iran has deprived
the group of its key allies, although friendly relations with Qatar and Egypt helped somewhat to ease the movement's diplomatic isolation in the
region. In October 2022, Hamas restored its ties with the Syrian government with the help of Iran and the Iran-backed Lebanese group Hezbollah.
Egypt: Despite the overthrow of former president Hosni Mubarak, Egypt continues to play a major role in mediating conflicts between Israelis and
Palestinians as well as among Palestinian factions - the latter for which Egypt has hosted a series of talks in Cairo over 2017-2018 and brokered the
ceasefire following the May 2021 military confrontation and August 2022 clashes. In May 2011, the reconciliation agreement between Fatah and
Hamas was signed in Cairo, and the subsequent Israel-Hamas prisoner swap deal that led to the release of captured Israeli sergeant Gilad Shalit
was also negotiated.
Egypt is particularly important for Gaza because the Egypt-Gaza border is the only one not directly controlled by Israel. Mubarak cooperated with
Israel, which hoped to weaken Hamas' support, by blockading the Gaza Strip for the four years before he was removed from office. Egypt has on
occasion opened the Rafah border since 2011, but the flow of goods and people has not seen a substantial improvement from before.
US: The US plays an important role in several ways. First, as a major mediator of the Israeli-Palestinian conflict, Washington has promoted dialogue
among the two parties. US leaders helped orchestrate the meeting of then Israeli premier Yitzhak Rabin and Palestine Liberation Organization
leader at the time Yasser Arafat in 1993, the Camp David Summit with then Israeli premier Ehud Barak and PA chairman at the time Yasser Arafat in
2000, and more recently direct talks between Israeli prime minister Binyamin Netanyahu and PA President Mahmoud Abbas in September 2010.
In 2020, then US president Donald Trump outlined his 'peace plan' for the Middle East, alongside Netanyahu, which faced fierce opposition in the
Palestinian Territories, as well as from the international community, despite Israel's unity coalition vowing to press ahead with it in May 2020.
The US has also traditionally been a major donor to Palestinians. Annual bilateral assistance has often surpassed USD500mn according to the US
Congressional Research Service, with nearly 80% of funds going to the Economic Support Fund (which provides direct budgetary assistance to the
PA and supports USAID development projects). Washington has also provided more than USD200mn on average every year since 2007 to support
the UN Relief and Works Agency's work on behalf of Palestinian refugees. Over 2017-2018, however, this funding was scaled back drastically by
the pro-Israel administration of then-president Trump, which took a hawkish line in its dealings with the Palestinian Territories more generally. While
funding resumed under the Joe Biden administration in 2021, and reports of US-led talks on a potential Saudi-Israel normalisation deal have
suggested that Israel may be required to make some concessions to the Palestinians in exchange for rapprochement with Riyadh, we do not
anticipate a fundamental shift in US policy regarding the Palestinian Territories under the president.
Scenarios For Political Change
Continuation of Status Quo: Our core scenario sees a continuation of the current situation in the Palestinian Territories. Peace negotiations
have broken down very quickly whenever attempted, and efforts by international mediators, such as the Middle East Quartet (comprised of the US,
the EU, Russia and the UN), to restart talks have proved extremely difficult. Efforts by Palestinians to achieve statehood unilaterally, as in September
2011 when Abbas requested international recognition of Palestinian independence at the UN, have been met by fierce resistance from the US and
Israel, among others. The extremely slow pace of change regarding the Palestinian question leads us to believe there is a strong chance the
situation could remain largely unchanged at the end of our 10-year forecast period.
A New Intifada: Popular anger at the lack of democratic representation, shortage of economic opportunities, a continuation of Israel's
occupation of the West Bank and what is perceived as the PA’s lack of response to Israel’s increased raids and restrictions in the West Bank could
spark another intifada. Such a scenario would raise the Palestinian Territories' political risk profile and could lead to a change in the current political
leadership. This falls outside of our core scenario because of the failure of the prior two intifadas, as well as the extremely high economic costs of
the second uprising to the Palestinian economy (the Palestinian Territories experienced sharp economic contractions in 2001 and 2002, followed
by anaemic growth in 2003), could cause Palestinians reconsider the potential consequences of another uprising.
Negotiated Settlement: Progress by international mediators to bring the Israelis and Palestinians together to resolve final status issues could
eventually lead to a negotiated settlement and the creation of an independent Palestinian state. Those issues include the demarcation of borders,
the status of East Jerusalem, security concerns and the right of return of Palestinian refugees who fled Israeli territory when the state of Israel was
created. The Israeli government has gravitated towards a more hawkish stance on foreign policy, and we believe that trend will not change over
the medium-to-long term. As a result, we believe Israel will become less flexible on the final status issues, which will reduce the Palestinians'
willingness to negotiate.
Unilateral Declaration: There may be a future resolution by the UN that declares independence for the Palestinian territories. Although a vote
by the UN General Assembly granting the Palestinian Territories non-member state status represents a step forward in that direction, actual
statehood would require a recommendation by the UN Security Council and, therefore, the approval of the US (which we see as unlikely to occur
due to its strong political ties with Israel). Even if formal recognition were granted by the international community, we would expect the
enforcement of such a measure to run into considerable trouble, as Israel would most likely ignore any non-negotiated resolution and have the
implicit backing of the US. Even in the chance event that statehood could be declared unilaterally, we believe such a resolution would not be
implemented.
Global Macro Outlook
Recession Delayed, But Inflation To Prove Sticky

Our global growth forecast for 2023 has edged up from 2.2% in July to 2.4% in August as a result of stronger-than-expected GDP data in the first
half of the year for some major economies. The combination of tight labour markets, savings from the pandemic lockdowns and fiscal stimulus has
helped to cushion the impact from a sharp tightening in monetary conditions as well as a downturn in the global inventory cycle. Our new forecast
of 2.4% was primarily driven by our upward revisions to the US (0.4 percentage points - pp - to 2.1%) and the eurozone (0.2pp to 0.7%). We no
longer anticipate recessions i the eurozone in 2023, we and have pushed back the timing of the US recession to H1 2024.
Growth Outlook Continues To Improve Following Several Revisions

Global - Real GDP Growth, % (LHC) & Change In Growth Forecast From July, pp (RHC)
Source: Bloomberg, BMI
These upward revisions to growth for 2023, were somewhat offset by several downward revisions to economies including Saudi Arabia (-1.0pp to
0.8%), Ireland (-0.8pp to 3.2%) and Singapore (-0.3pp to 1.1%). As a result, our forecasts continue to remain below Bloomberg consensus estimate
of 2.6% for this year.
Mixed GDP Data And Weakening Private Sector Activity

Global - Q2 2023 GDP Results, % (LHC) & JP Morgan PMI Indices (RHC)
*Annualised. Source: Bloomberg, BMI
Real GDP growth was broadly mixed in Q2 2023, with strong upside surprises in the US, France and Indonesia being counterbalanced by weaker-
than-expected results in Italy, Germany and the Philippines. The challenge, however, is that high-frequency data such as purchasing managers’
indices (PMI) are pointing to a further slowing of the global economy as they turn lower. While the services sector has been acting as a major
counterweight to the weakness in manufacturing, services are starting to turn lower, although they remain in expansion. This suggests that global
growth will continue to slow over the coming quarters.
Earnings Under Pressure, But Not As Bad As Expected

US - S&P 500 Q2 2023 Earnings By Sector, % y-o-y (LHC) & Earnings Per Share, USD (RHC)
That said, corporate earnings in the US held up better than expected in the second quarter. While earnings at 91% of the S&P 500 firms to have
reported fell by 8.2%, this was not as bad as most analysts had feared. Although aggregate earnings fell, this was led by large declines in just four
sectors (two of them related to commodities), which offset earnings growth elsewhere. This shows that the majority of sectors were able to expand
earnings despite the more challenging economic conditions.
Headline Inflation Coming Down, But Core Still Very Sticky

Global - Headline Inflation, % y-o-y (LHC) & Core Inflation (RHC)
Inflation Will Prove Sticky
A key risk we will continue to focus on is US inflation and the trajectory for interest rates. Although markets are pricing in a ‘soft landing’, we still
have some concerns about whether headline and core inflation in the US will reach the US Federal Reserve (Fed)'s target as quickly as market
pricing currently suggests. Labour market conditions ultimately remain very tight, and this has helped wage growth to stabilise in the 4.0-5.0%
range, well above the 3.0% rate consistent with an inflation target of 2.0%. Combined with the 20% rise in oil prices since June, this could be
prompting some unease at the Fed and poses upside risks to our view that the Fed has finished tightening. As a result, this could lead to one more
hike by the end of 2023 and delay the start of the cutting cycle in 2024; we forecast a cumulative 175 basis points (bps) of cuts by the end of
2024.
GLOBAL - MACROECONOMIC FORECASTS (2020-2027)

2020 2021 2022 2023f 2024f 2025f 2026f 2027f
Real GDP Growth (%)
US -2.8 5.9 2.1 2.1 0.5 2.6 1.9 1.9
Eurozone -6.0 5.5 3.5 0.7 0.8 1.8 1.7 1.6
Japan -4.3 2.2 1.1 1.3 1.0 1.0 0.9 0.8
China (Mainland) 2.2 8.1 3.0 5.2 5.0 5.0 4.9 4.9
World -3.0 6.1 3.1 2.4 2.2 3.2 2.9 2.9
Consumer Inflation (avg)
US 1.2 4.7 8.0 4.2 3.0 2.5 2.5 2.5
Eurozone 0.3 2.6 8.4 5.3 2.4 2.0 2.3 2.3
Japan 0.0 -0.3 2.5 2.6 1.5 1.0 1.0 1.0
China (Mainland) 2.5 0.9 2.0 0.8 1.9 2.3 2.3 2.3
World 2.3 4.0 8.0 6.1 4.6 3.3 2.9 2.8
Interest Rates (eop)
Fed Funds Rate 0.25 0.25 4.50 5.50 3.75 2.75 2.75 2.75
ECB Refinancing Rate 0.00 0.00 2.50 4.25 3.50 2.50 2.50 2.50
Japan Overnight Call
-0.10 -0.10 -0.10 -0.10 0.00 0.00 0.00 0.10
Rate
Exchange Rates (avg)
USD per EUR 1.14 1.18 1.05 1.09 1.10 1.12 1.12 1.12
JPY per USD 107 110 131 135 126 121 115 115
CNY per USD 6.90 6.45 6.74 7.00 6.80 6.65 6.83 6.88
Oil Prices (avg)

OPEC basket (USD/
41.47 69.89 101.17 78.00 82.00 82.00 79.00 79.00
bbl)
Brent crude (USD/
43.21 70.95 99.04 80.00 83.00 83.00 80.00 80.00
bbl)
Note: May include territories, special administrative regions, provinces and autonomous regions. f = BMI forecast. Source: Bloomberg, local sources, BMI
GLOBAL AND REGIONAL - REAL GDP GROWTH AND EXCHANGE RATES, % CHG Y-O-Y (2020-2027)
2020 2021 2022 2023f 2024f 2025f 2026f 2027f
World -3.0 6.1 3.1 2.4 2.2 3.2 2.9 2.9
Developed Markets -4.1 5.5 2.6 1.5 0.9 2.3 1.9 1.9
Emerging Markets -1.3 7.0 3.7 3.8 4.1 4.4 4.4 4.3
Asia (excluding Japan) 0.3 7.6 3.9 5.2 5.2 5.2 5.2 5.2
Latin America -6.4 7.0 3.6 1.8 1.6 2.9 2.6 2.5
Emerging Europe -2.0 6.9 0.9 0.9 2.0 2.3 2.7 2.8
Sub-Saharan Africa -1.7 4.6 3.6 3.1 4.0 4.6 4.4 4.4
Middle East and North Africa -3.6 4.6 6.0 2.3 3.0 3.7 3.9 3.3
Developed Market Exchange Rates (avg)
2020 2021 2022 2023f 2024f 2025f 2026f 2027f

Eurozone USD per EUR 1.14 1.18 1.05 1.09 1.10 1.12 1.12 1.12
Japan JPY per USD 107 110 131 135 126 121 115 115
Switzerland CHF per USD 0.94 0.91 0.95 0.90 0.90 0.91 0.91 0.89
UK USD per GBP 1.28 1.38 1.23 1.22 1.26 1.31 1.30 1.29
Emerging Market Exchange Rates (avg)
2020 2021 2022 2023f 2024f 2025f 2026f 2027f
China (Mainland) CNY per USD 6.9 6.4 6.7 7.0 6.8 6.7 6.8 6.9
South Korea KRW per USD 1,180 1,144 1,291 1,300 1,205 1,175 1,150 1,100
India INR per USD 74.1 73.9 78.6 82.5 81.0 83.0 84.7 86.4
Brazil BRL per USD 5.16 5.39 5.16 5.00 5.08 5.05 5.15 5.25
Mexico MXN per USD 21.5 20.3 20.1 18.0 18.2 17.2 17.0 17.0
Russia RUB per USD 72.1 73.7 68.5 80.2 89.0 86.5 84.3 83.8
Turkiye TRY per USD 7.0 8.9 16.5 22.9 30.0 29.0 24.8 25.7
South Africa ZAR per USD 16.5 14.8 16.4 18.7 20.2 20.0 20.3 20.6
Note: May include territories, special administrative regions, provinces and autonomous regions. f = BMI forecast. Source: Bloomberg, local sources, BMI
Developed Markets: More Bullish On DM Growth, But Private Sector is Struggling
We have raised our 2023 growth forecast for developed markets (DMs) from 1.2% in June to 1.5% in August. While we have reduced our growth
projections for a few economies, including South Korea and Ireland, the negative impact on the overall DM figure was outweighed by upward
revisions to larger economies, including the US, Canada, Germany and France. Nevertheless, we still expect a significant slowdown from the 2.6%
growth registered in 2022. Our growth projection for 2024 remains unchanged at 0.9%. A sharp slowdown in the US will be the primary reason for
our less sanguine outlook in 2024.
Upward Forecast Revision

DMs - Aggregate Real GDP Growth, % (2015-2024)
f = forecast. Source: BMI
In DM Europe, we are slightly more optimistic on the eurozone. Following stronger-than-expected growth in Q2 2023 (0.3% q-o-q compared with
a consensus projection of 0.2%) and upwardly-revised growth in Q1 2023 (0.0% from -0.1% previously), we revised up our full-year forecast for the
bloc from 0.5% to 0.7%. This reflects upward adjustments to our forecasts for Spain (1.4% to 2.2%), Belgium (0.3% to 1.1%) and France (0.5% to
0.7%). We also now expect a milder contraction in Germany (-0.6% to -0.3%). Elsewhere in DM Europe, we revised our 2023 forecast for the UK
(0.4% to 0.5%).
Despite these improvements, we continue to expect broad stagnation across the region in H2 2023. We have revised down our 2024 eurozone
growth forecast from 0.9% to 0.8%, primarily due to the delayed impact of the European Central Bank’s aggressive tightening and a still weak
external backdrop.
Mostly Upward Revisions

Selected DMs – Real GDP Growth, %
f = forecast. Source: BMI
In DM Asia, we adjusted our 2023 growth forecast for South Korea from 1.5% down to 1.3% given weaker-than-expected growth in Q2 2023. We
expect that the South Korean economy will struggle in the second half of the year due to subdued global demand, high interest rates, and fiscal
tightening. A poor performance in H1 also prompted us to revise our 2023 real GDP growth forecast for Singapore from 1.4% to 1.1%.
Our growth forecasts for Japan and Australia remain unchanged. We expect Japan's growth to accelerate to 1.3% in 2023, up from 1.1% in 2022,
driven by supportive monetary and fiscal policies. In Australia, we project growth of 1.9% in 2023, down from 3.7% in 2022, as the economy faces
strong headwinds from tightening monetary conditions and high household leverage.
Japan Will Buck The Trend

Selected DMs - Real GDP Growth, % (2022 & 2023)
Note: May include territories, special administrative regions, provinces and autonomous regions. f = forecast. Source: BMI
Moving to North America, we have revised up our forecast for US real GDP growth in 2023 from 1.6% to 2.1%, while slightly revising down our
2024 projection from 0.6% to 0.5%. This adjustment is due to stronger-than-expected growth of 2.4% q-o-q annualised in Q2 and our view that
the US will enter recession in mid-2024 rather than in late 2023. That said, the likelihood of a 'soft landing' is rising.
We have also revised up our forecast for Canadian real GDP growth in 2023 from 1.2% to 1.6%. The Canadian economy has shown resilience in the
face of the Bank of Canada's aggressive tightening cycle, which saw interest rates rise from 0.25% to 5.00% within 18 months. Output growth
surged to 0.8% q-o-q (3.1% in annualised terms) in Q1 2023 after a stagnant performance in Q4 2022. However, risks to our forecasts remain
somewhat tilted to the downside.
Momentum Easing
Selected DMs – Composite PMIs, Index
Source: Macrobond, BMI
Services Struggling To Offset Weak Manufacturing
PMIs eased further in July, pointing to a more challenging macro backdrop in H2 2023. Half of the largest DM economies are reporting composite
PMI readings below 50, largely driven by a weak manufacturing sector which is now weighing more heavily on services. This includes Germany,
Australia, Italy and France, which are all registering readings below 50 in the composite PMI. Among the sampled economies, Japan was the only
major one to record an increase in the composite PMI.
DEVELOPED MARKETS - REAL GDP GROWTH FORECASTS (2020-2027)

2020 2021 2022 2023f 2024f 2025f 2026f 2027f
Developed Markets Aggregate Growth -4.1 5.5 2.6 1.5 0.9 2.3 1.8 1.8
G7 -4.4 5.4 2.3 1.5 0.6 2.2 1.7 1.7
Eurozone -6.0 5.5 3.5 0.7 0.8 1.8 1.7 1.6
EU-27 -5.5 5.6 3.6 0.7 1.0 2.0 1.9 1.9
Selected Developed Markets
Australia -2.0 5.1 3.7 1.9 1.7 2.6 2.6 2.6
Austria -6.5 4.6 5.0 0.7 1.1 1.9 1.6 1.7
Belgium -5.4 6.1 3.1 1.1 1.2 1.7 1.5 1.2
Canada -5.1 5.0 3.4 1.6 0.8 2.8 1.9 1.9
Czech Republic -5.5 3.6 2.5 0.0 2.2 4.2 3.8 3.7
Denmark -2.0 4.9 3.8 0.5 1.6 1.5 1.6 1.7
Finland -2.4 3.0 2.0 -0.1 1.1 1.4 1.1 1.2
France -7.5 6.4 2.5 0.7 0.7 1.0 1.5 1.6
Germany -3.8 3.2 1.8 -0.3 0.4 1.3 1.2 1.4
Hong Kong, China -6.5 6.4 -3.5 3.7 1.5 2.0 2.0 2.0
Ireland 6.2 13.6 12.0 3.2 3.4 3.2 3.5 3.4
Italy -9.0 7.0 3.7 0.7 0.4 2.4 1.6 1.3
Japan -4.3 2.2 1.1 1.3 1.0 1.0 0.9 0.8
Netherlands -3.8 4.8 4.5 0.8 0.9 1.5 1.5 1.4
Norway -1.3 3.9 3.3 1.2 1.6 2.2 1.8 1.8
Portugal -8.3 5.5 6.7 2.7 1.5 3.2 2.9 2.9
Singapore -3.9 8.9 3.6 1.1 2.8 2.8 2.8 2.8
South Korea -0.7 4.1 2.6 1.3 2.7 2.6 2.6 2.6
Spain -11.3 5.5 5.5 2.2 1.0 3.0 2.1 1.9
Sweden -2.2 6.1 2.8 -0.3 1.0 1.8 1.8 1.8
Switzerland -2.4 4.2 2.1 0.8 1.1 1.5 1.6 1.6
Taiwan, China 3.4 6.5 2.5 1.2 2.9 3.0 3.0 3.0
UK -11.0 7.6 4.1 0.5 0.7 2.9 1.5 1.5
US -2.8 5.9 2.1 2.1 0.5 2.6 1.9 1.9
Note: Includes territories, special administrative regions, provinces and autonomous regions. f = BMI forecast. Source: Local sources, BMI
Emerging Markets: Despite Downbeat Activity Figures, Key Forecasts Left Unchanged
The first Q2 2023 GDP figures suggest that economic conditions in emerging markets (EMs) softened in the middle of the year.
The pace of quarter-on-quarter contraction in Saudi Arabia eased slightly in Q2 2023 (1.4% to 1.2%), but elsewhere growth slowed or (in the case
of the Philippines and Latvia) economies flipped into contraction (see chart below).
First Q2 GDP Prints Weak

EMs – Real GDP Growth, % q-o-q
Source: Macrobond
The quarter-on-quarter contraction in Saudi Arabia was worse than we had expected and prompted us to revised our 2023 full-year growth
forecast from 1.7% to 0.8%. We think that oil production cuts will weigh on the economy over the coming months but that growth in the non-oil
sector will be enough for the country to avoid a full-year contraction. Output in the Philippines also fell in Q2, which raised the downside risk to our
full-year forecast. Mainland China’s economic performance was also worse than we (or most analysts) had expected, with the poor performance in
Q2 2023 strengthening our view that output will rise by just 5.2% this year. Consensus forecasts for growth in China have fallen from 5.7% in
recent months to 5.2%, in line with our own forecast.
Indonesia was a bit of an exception. Growth came in at an above-consensus 3.9% q-o-q due to strong consumer spending. While growth slowed a
touch in Mexico (1.0% q-o-q to 0.9% q-o-q), it remained above trend due to the strong performance of the tertiary sector, tight labour markets and
easing inflation. We retain the view that Mexican GDP will rise by 3.0% over 2023 as a whole. Our conviction in our above-consensus forecast for
the country increased this month after Q2 2023 figures from the US suggested that activity in Mexico’s largest trading partner will hold up even
better than we thought this year.
More timely figures were mixed, but downbeat figures from China suggest that headline EM growth will weaken in the second half
of the year. The Caixin manufacturing PMI, for example, fell from 50.5 in June to 49.2 in July. This caused our EM-wide, GDP-weighted PMI measure
to drop from 51.0 to 50.4, suggesting that EM-wide output was essentially stagnant at the start of Q3 2023. External headwinds also seem to have
increased. While most EMs have only released trade figures covering the year to May, exports from countries which have published June data fell by
12.5% y-o-y. This was the sharpest decline since early 2020 (see chart below).
EM Exports Faltering
EMs – Exports From Major EMs, USD terms, % y-o-y
Source: BMI
The decline in exports was broad based, with shipments falling in both manufacturing economies and resources exporters. While base effects may
have inflated July’s 14.5% y-o-y decline in Chinese exports, the latest figures point to underlying weakness. Chinese exports fell month-on-month in
July as they now have for three of the past four months.
In more positive news, inflation continued to ease across most of the EM world in June and July. However, there were a few exceptions.
These were almost all concentrated in the small group of EMs already facing inflationary spikes (price growth jumped from 114.2% in May to
115.6% in June in Argentina and from 38.2% in June to 47.8% in July in Turkiye). Elsewhere, the disinflationary theme was clear. The median
inflation rate among major EMs slowed from 14.2% in May to 13.6% in June and 12.2% in July (see chart below).
Inflation Easing In Mid-2023

Selected EMs – Inflation, % y-o-y
Source: Macrobond, BMI
This slowing of inflation suggests that the EM rate hiking cycle is now essentially over. Several major Latin American central banks started their
long-awaited loosening cycles in late July and early August, with interest rates cut in Brazil (13.75% to 13.25%) and Chile (11.25% to 10.25%).
Policymakers had already loosened policy in Uruguay and the Dominican Republic, but these were the first large EMs to begin winding back the
rate hikes introduced in recent years. We expect that policymakers in both countries will cut further over the coming months, with Brazil’s key rate
ending the year at 11.75% (down 150bps) and Chile’s at 7.50% (down 275bps). Policymakers in Colombia, Peru and Mexico will also join in over the
coming months (see chart below).
Majors Begin To Ease Policy

Latin America – Policy Interest Rates, %
*As of 10 August. Source: BMI
Elsewhere, however, we think that most EMs will leave their key policy rates on hold until early 2024 when the US Fed begins to reverse its own
cycle.
While stronger-than-expected figures from the US led us to revised up our 2023 growth forecast for DMs, we left most of our EM
forecasts unchanged over the past month. We expect that EM-wide growth will accelerate from 3.7% in 2022 to 3.8% in 2023. Even after our
latest upward revision, we think that DM growth will slow from 2.6% in 2022 to 1.5% in 2023 (see chart below). Growth willvary in different EM
regions. We are most optimistic about EM Asia and Sub-Saharan Africa.
EM Forecasts Left Unchanged

Global – Real GDP Growth Forecasts (2022-2026)
Source: BMI
EM Asia: Fastest-Growing Region Of EM World
We expect that aggregate GDP in EM Asia will grow by 5.2% in 2023, faster than in any other EM region (see chart below). Recent
economic figures from China were weaker than expected but still showed a robust expansion compared with last year. In July, the PMI fell below
the 50 mark, consumer prices fell year-on-year and exports declined. Consensus expectations have now converged with our view that the world’s
largest EM will expand by 5.2% this year.
EM Asia Will Grow Faster Than Other Regions

EMs – Real GDP Growth Forecast, % (2023)
Note: May include territories, special administrative regions, provinces and autonomous regions. *MENA aggregate excludes Libya, Syria and Yemen. Source: BMI
Elsewhere in the region, we expect that growth in India will slow from 7.2% in FY2022/23 to 6.3% in FY2023/24 and that growth in Indonesia will
ease slow from 5.3% in 2022 to 4.8% in 2023 (although the Q2 2023 GDP reading of 5.2% y-o-y suggests some slight upside risks to this
view). Growth in Thailand will strengthen from 2.6% to 3.0% as the tourism sector recovers. The only revision we made over the past month was to
our forecast for the Philippines. A weak growth print in Q2 2023 prompted us to lower our 2023 forecast from 5.9% to 5.3%.
Sub-Saharan Africa: Niger Crisis Will Have Limited Economic Effect
Attention has focused on the July 2023 coup in Niger, but the crisis has not led us to make any significant revisions to our Sub-Saharan Africa
(SSA)-wide growth forecasts. We still expect that the region will be the second fastest growing in the EM world, with GDP rising by 3.1%. While the
crisis in Niger has significant political implications, the Sahel region is economically peripheral. Taken together, Niger, Burkina Faso and Mali
cumulatively contribute only 3.0% of SSA’s GDP (see chart below). The economic implications of the coup would grow if it prompted a Nigeria-led
military intervention, but we do not think that this is likely.
Political Crisis Far From Key Economic Centres

SSA – Nominal GDP, % of regional total
Source: BMI
We expect that growth in Nigeria will slow from 3.3% in 2022 to 2.7% in 2023 as a result of elevated inflation and weak oil production and prices.
While President Bola Ahmed Tinubu’s bold reform agenda will be painful in the short term, we think that it will improve Nigeria’s medium-term
fiscal outlook. In South Africa, the region’s second largest economy, we think that the escalating power crisis will weigh heavily on growth, which
we forecast to slow sharply from 1.9% in 2022 to just 0.2% in 2023.
MENA: Saudi Revision Drags Down Regional Forecast
We lowered our 2023 real GDP growth forecast for MENA from 2.5% to 2.3% as a downward revision to our forecast for Saudi Arabia
outweighed a more optimistic view about Egypt (see chart below). We reduced our 2023 forecast for growth in Saudi Arabia from 1.8% to
just 0.8% after Q2 2023 GDP figures showed that oil output fell faster than we had expected and will mark a very rapid deceleration in growth from
8.7% in 2022.
Saudi Arabia Drives Downward Revision

MENA – Real GDP Growth Forecast, % (2023)
*Fiscal years ending March 31 (2022=2022/23). **Fiscal years ending June 31 (2022 = 2021/22). Source: BMI
This counterbalanced a slight upward revision to our forecast for Egypt. We moved our FY2023/24 growth forecast for Egypt up from 3.8% to 4.2%
based on preliminary figures from the ministry of finance. Elsewhere, we left our forecasts for Iran (2.7%), the UAE (2.1%) and Algeria (2.1%)
unchanged.
Latin America: Attention Focusing On Monetary Policy
After revising up our views on Mexico and Brazil in June, we left our key 2023 Latin American growth forecasts unchanged in July and early August.
We expect that tighter monetary policy, elevated inflation and lower commodity prices will cause growth in the region as a whole to slip from 3.6%
in 2022 to 1.8% in 2023 (see chart below). However, rising investment and strong US demand will make Mexico an outperformer; we expect that
the country’s economy will grow by 3.0% in 2023, similar to the 2022 reading. Elsewhere, we expect growth of 2.3% in Brazil. GDP will essentially
flatline in Chile (-0.1% due to weak consumer sentiment), and output will fall in Argentina (-2.1% due to escalating inflation and falling agricultural
production).
Key Views Unchanged

Latin America – Real GDP Forecast, % (2023)
Source: BMI
Investors’ attention has been focused on monetary policy; policymakers in Brazil and Chile began monetary loosening cycles in July and early
August. We expect that Brazilian policymakers will cut the SELIC rate from 13.25% to 11.75% by the end of 2023, while Chilean policymakers will
drop their rate from 10.25% to 7.50%.
EM Europe: Slight Revision, But Outlook Still Weak
We raised our 2023 growth forecast for EM Europe from 0.8% to 0.9%, but the the region will be the worst performing in the EM
world. Our slight revision was entirely due to surprisingly strong Q1 2023 data from Kazakhstan, which led us to revise up our 2023 growth
forecast for the country from 3.4% to 5.2%. This counterbalanced a slight downward revision to our Romania forecast (2.4% to 2.2%) after weak Q1
2023 GDP figures suggested that consumer spending will be lower than we had previously expected (see chart below)
Upward Revision For Kazakhstan Buoys Regional Figure

EM Europe - Real GDP Growth Forecast, % (2023)
Source: BMI
Elsewhere, we left our forecasts for EM Europe’s larger economies unchanged. We expect growth of 2.6% in Turkiye and 1.5% in Poland. Output will
fall by 1.2% in both Hungary and Russia.
EMERGING MARKETS - REAL GDP GROWTH FORECASTS (2020-2027)

2020 2021 2022 2023f 2024f 2025f 2026f 2027f
Emerging Market Aggregate Growth -1.3 7.0 3.7 3.8 4.1 4.4 4.4 4.3
Latin America -6.4 7.0 3.6 1.8 1.6 2.9 2.6 2.5
Argentina -9.9 10.7 5.0 -2.1 0.5 2.3 2.0 1.8
Brazil -3.3 5.0 2.9 2.3 1.4 1.9 2.0 1.8
Chile -6.1 11.7 2.4 -0.1 2.0 2.5 2.2 2.5
Colombia -7.3 11.0 7.3 2.0 2.0 2.2 2.7 3.0
Mexico -8.0 4.7 3.0 3.0 1.6 4.6 3.5 3.0
Middle East and North Africa* -3.6 4.6 6.0 2.3 3.0 3.7 3.9 3.3
Saudi Arabia -4.3 3.9 8.7 0.8 2.4 3.7 4.1 3.0
UAE -6.1 3.8 7.6 2.1 4.0 6.0 6.6 4.7
Iran** 3.3 4.7 3.0 2.7 2.8 2.7 2.7 2.6
Algeria -5.1 3.4 3.3 2.1 1.9 1.8 1.8 1.9
Egypt*** 3.6 3.3 6.7 4.2 4.3 4.4 4.0 4.0
Sub-Saharan Africa -1.7 4.6 3.6 3.1 4.0 4.6 4.4 4.4
South Africa -6.2 4.8 1.9 0.2 1.9 2.3 2.4 2.5
Kenya -0.3 8.4 4.8 5.0 5.3 5.0 4.9 4.9
Ethiopia 6.1 5.6 4.4 6.0 6.8 6.9 6.6 6.8
Nigeria -1.8 3.6 3.3 2.7 3.2 4.5 4.6 4.3
Emerging Asia 0.3 7.6 3.9 5.2 5.2 5.2 5.2 5.2
China (Mainland) 2.2 8.1 3.0 5.2 5.0 5.0 4.9 4.9
India** -5.7 9.1 7.2 6.3 6.3 6.5 6.6 6.8
Indonesia -2.1 3.7 5.3 4.8 5.0 4.9 4.9 4.9
Malaysia -5.6 3.3 8.7 4.2 4.4 4.1 4.0 3.9
Philippines -9.5 5.7 7.6 5.3 6.6 6.7 6.7 6.6
Thailand -6.1 1.5 2.6 3.0 3.2 2.7 2.7 2.7
Emerging Europe -2.0 6.9 0.9 0.9 2.0 2.3 2.7 2.8
Russia -2.7 5.6 -2.1 -1.2 0.9 1.0 1.2 1.1
Turkiye 1.9 11.4 5.6 2.6 2.0 2.0 2.7 3.4
Hungary -4.5 7.2 4.6 -1.2 1.9 1.9 2.4 2.0
Romania -3.7 5.8 4.7 2.2 2.7 3.0 2.9 3.2
Poland -2.0 6.9 5.1 1.5 2.2 3.6 4.8 4.5
Note: *MENA aggregate excludes Libya, Syria and Yemen. **Fiscal years ending March 31 (2022 = 2022/23). ***Fiscal years ending June 31 (2023 = 2022/23). f = forecast. Source: BMI
Index Tables
SHORT-TERM POLITICAL RISK INDEX

Score Trend Regional Rank Global Rank
UAE 88.8 = 1 5
Oman 83.8 = 2 11
Qatar 83.3 = 3 13
Saudi Arabia 76.9 = 4 37
Bahrain 75.0 = 5 41
Kuwait 74.4 + 6 44
Jordan 64.9 = 7 82
Morocco 59.8 - 8 104
Algeria 57.9 - 9 111
Iran 57.5 = 10 116
Egypt 56.5 = 11 120
Tunisia 48.1 + 12 149
Iraq 38.3 = 13 170
Lebanon 37.9 = 14 171
Syria 31.7 - 15 178
Libya 30.7 + 16 179
West Bank and Gaza 27.5 = 17 182
Yemen 22.7 = 18 185
Regional average 56.4/Global average 60.9/Emerging Markets average 57.4
Note: May include territories, special administrative regions, provinces and autonomous regions. Scores out of 100; higher score = lower risk. Source: BMI
LONG-TERM POLITICAL RISK INDEX

UAE 79.3 = 1 29
Oman 72.4 = 2 50
Qatar 71.3 = 3 54
Jordan 69.0 = 4 65
Kuwait 66.1 = 5 74
Morocco 66.0 = 6 76
Saudi Arabia 62.9 = 7 86
Tunisia 62.4 = 8 91
Bahrain 61.3 = 9 95
Egypt 58.2 = 10 109
Iran 53.6 = 11 130
Algeria 51.4 = 12 139
Lebanon 40.5 = 13 167
West Bank and Gaza 39.2 = 14 168
Iraq 39.1 = 15 169
Yemen 29.6 = 16 182
Libya 25.4 = 17 184
Syria 23.7 = 18 185
SHORT-TERM ECONOMIC RISK INDEX

Saudi Arabia 76.9 + 1 6
Oman 71.0 = 2 16
UAE 66.7 = 3 34
Qatar 59.6 + 4 55
Kuwait 59.4 - 5 56
Iraq 54.8 = 6 74
Algeria 51.5 + 7 87
Bahrain 45.2 - 8 117
Libya 45.0 = 9 119
Iran 43.3 = 10 128
Morocco 42.1 - 11 131
West Bank and Gaza 41.0 + 12 138
Jordan 38.5 - 13 150
Egypt 38.3 + 14 152
Tunisia 31.9 - 15 172
Yemen 18.5 = 16 184
Lebanon 18.1 - 17 185
Syria 14.2 + 18 186
LONG-TERM ECONOMIC RISK INDEX

Saudi Arabia 69.8 + 1 28
UAE 64.5 + 2 48
Qatar 61.6 + 3 54
Oman 60.0 + 4 57
Kuwait 57.2 - 5 65
Egypt 54.3 - 6 79
Bahrain 51.5 - 7 86
Morocco 48.3 + 8 107
Algeria 47.5 + 9 112
Iraq 45.9 = 10 118
Iran 45.5 - 11 121
Jordan 43.9 + 12 131
Libya 40.4 = 13 151
Tunisia 38.0 - 14 162
West Bank and Gaza 35.9 + 15 169
Lebanon 29.8 - 16 179
Yemen 25.7 = 17 183
Syria 22.5 = 18 187
Note: Our Country Risk Indices are updated frequently; as a result, the scores in this section may not match those in other sections of the report.
Macroeconomic Forecasts
MACROECONOMIC FORECASTS (WEST BANK AND GAZA 2022-2027)

Indicator 2022e 2023f 2024f 2025f 2026f 2027f
Nominal GDP, USDbn 17.7 19.2 20.3 21.7 23.1 24.6
Nominal GDP, EURbn 14.2 15.3 16.2 17.3 18.5 19.7
GDP per capita, USD 3,378 3,567 3,694 3,857 4,013 4,188
GDP per capita, EUR 2,702 2,853 2,955 3,086 3,210 3,350
Population, mn 5.25 5.37 5.49 5.62 5.75 5.87
Unemployment, % of labour force, eop 25.0 24.0 24.0 23.0 23.0 23.0
Consumer price inflation, % y-o-y, ave 3.7 3.4 1.6 2.0 1.6 1.8
Lending rate, %, ave 6.5 6.5 6.5 6.5 6.5 6.5
Government final consumption, real growth % y-o-y -10.5 -0.5 3.5 3.5 3.5 3.5
Exchange rate USD per USD, ave 1.00 1.00 1.00 1.00 1.00 1.00
Exchange rate USD per EUR, ave 1.05 1.09 1.10 1.12 1.12 1.12
Goods and services exports, USDbn 3.4 3.7 4.0 4.3 4.6 5.0
Goods and services imports, USDbn 10.6 11.1 11.7 12.3 12.9 13.6
Balance of trade in goods and services, USDbn -7.2 -7.5 -7.7 -8.0 -8.3 -8.5
Balance of trade in goods and services, % of GDP -40.7 -39.0 -38.1 -36.9 -35.8 -34.7
Foreign reserves ex gold, USDbn 0.9 1.0 1.0 1.1 1.2 1.2
Import cover, months 1.3 1.3 1.3 1.3 1.3 1.3
Budget balance, USDbn -0.2 -0.6 -0.7 -0.8 -0.9 -1.0
MACROECONOMIC FORECASTS (WEST BANK AND GAZA 2028-2032)

Indicator 2028f 2029f 2030f 2031f 2032f
Nominal GDP, USDbn 26.3 28.1 30.2 32.4 34.9
Nominal GDP, EURbn 21.0 22.5 24.1 25.9 27.9
Real GDP growth, % y-o-y 2.8 2.8 2.7 2.6 2.5
GDP per capita, USD 4,378 4,584 4,820 5,076 5,355
GDP per capita, EUR 3,502 3,667 3,856 4,061 4,284
Population, mn 6.00 6.13 6.26 6.39 6.52
Unemployment, % of labour force, eop 23.0 23.0 23.0 23.0 23.0
Consumer price inflation, % y-o-y, ave 1.9 2.0 2.0 2.0 2.0
Lending rate, %, ave 6.5 6.5 6.5 6.5 6.5
Private final consumption, % of GDP 86.3 85.6 84.6 83.5 82.3
Private final consumption, real growth % y-o-y 4.0 4.0 4.0 4.0 4.0
Government final consumption, % of GDP 21.2 21.0 20.8 20.7 20.6
Government final consumption, real growth % y-o-y 3.5 3.5 4.5 4.8 5.2
Fixed capital formation, % of GDP 19.3 19.2 19.3 19.4 19.5
Fixed capital formation, real growth % y-o-y 4.5 4.5 5.5 5.8 6.2
Exchange rate USD per USD, ave 1.00 1.00 1.00 1.00 1.00
Exchange rate USD per EUR, ave 1.12 1.12 1.12 1.12 1.12
Goods and services exports, USDbn 5.4 5.9 6.3 6.9 7.4
Goods and services imports, USDbn 14.2 14.9 15.7 16.5 17.3
Balance of trade in goods and services, USDbn -8.8 -9.1 -9.3 -9.6 -9.9
Balance of trade in goods and services, % of GDP -33.5 -32.3 -31.0 -29.6 -28.3
Current account balance, USDbn -0.3 0.1 0.5 0.9 1.5
Current account balance, % of GDP -1.0 0.3 1.6 2.9 4.3
Foreign reserves ex gold, USDbn 1.3 1.4 1.5 1.6 1.7
Import cover, months 1.3 1.4 1.4 1.4 1.4
Budget balance, USDbn -1.2 -1.2 -1.3 -1.3 -1.4
Budget balance, % of GDP -4.4 -4.2 -4.2 -4.2 -4.1
Indices - Brief Methodology

Composite Score
The composite score is an unweighted geometric mean of the short-term political and short-term economic scores, allowing a
ranking of all markets in our emerging markets universe.
Political Risk Index
The Political Risk Index is an indicator of political stability, seen as a pre-requisite for a stable economy and business environment.
The long-term political score considers more structural elements such as: Is there a functioning democracy? Are there free and fair
elections? Have recent governments pursued similar, enlightened policies amid a stable political environment? The short-term
political score considers more transient influences such as: Have there been recent large-scale demonstrations or strikes? To what
extent have these threatened the political status quo? Is unemployment currently a potential source of political instability? What is
the current position in the political cycle – to what extent is this contributing to political risk? Is the government having trouble
passing legislation?
Economic Risk Index
The Economic Risk Index assesses the degree to which the market approximates the ideal of non-inflationary growth with
contained fiscal and external deficits and manageable debt ratios. The index uses as raw material historical data and forecasts fed in
from our databases: as historical data are revised and forecasts change, so the scores change. Factors in the long-term score include
GDP growth, unemployment, inflation, real interest rates, exchange rates, the fiscal balance, the current account balance and
external debt. A number of other structural factors are also thrown into the equation, including dependence on the primary sector,
reliance on commodity imports, reliance on a single export sector and central bank independence. The factors included in the
short-term score are a subset of those in the long-term score.
30 North C
Colonnade
olonnade,, Canary W
Wharf
harf,, L
London.
ondon. E14 5GN, UK
Tel: +44 (0)20 7248 0468
Fax: +44 (0)20 7248 0467
Web: www.fitchsolutions.com/bmi
IS
ISSN:
SN: 2057-9861
Analy
Analysst: Ramona Moubarak, Connor Coleman, Cristiana Wu
Edit
ditor:
or: Ramona Moubarak
Sub-E
Sub-Edit
ditor:
or: Emily Yuen
Mark
Marketing:
eting: Julia Consuegra
Pr
Production:
oduction: Neil Murphy
Cop
opy
y Deadline: September 2023
© 2023 Fitch Solutions Group Limited. All rights reserved.
All information, analysis, forecasts and data provided by Fitch Solutions Group Limited are for the exclusive use of subscribing persons or organisations (including those
using the service on a trial basis). All such content is copyrighted in the name of Fitch Solutions Group Limited and as such no part of this content may be reproduced,
repackaged, copied or redistributed without the express consent of Fitch Solutions Group Limited.
All content, including forecasts, analysis and opinion, is based on information and sources believed to be accurate and reliable at the time of publishing. Fitch Solutions
Group Limited makes no representation or warranty of any kind as to the accuracy or completeness of any information provided, and accepts no liability whatsoever for any
loss or damage resulting from opinion, errors, inaccuracies or omissions affecting any part of the content.
This report from BMI – A Fitch Solutions Company is a product of Fitch Solutions Group Limited; UK Company registration number 08789939 ('FSG'). FSG is an affiliate of
Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings.
Copyright © 2023 Fitch Solutions Group Limited.

Reproduced with permission of copyright owner. Further reproduction
prohibited without permission.

Fitch - Jordan - Outlook & Risks

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Fitch - Jordan - Outlook & Risks

Uploaded by

Copyright:

Available Formats

Q4 2023

Jordan and the West

© 2023 Fitch Solutions Group Limited. All rights reserved.

Copyright © 2023 Fitch Solutions Group Limited.

MACROECONOMIC FORECASTS (JORDAN 2021-2024)

All Sectors Positively Contribute To Jordanian Growth

Source: Department of Statistics, BMI

Above-Trend Growth In The Wholesale Sector

Source: Department of Statistics, BMI

Growth Will Be Supported By All Expenditure Components

e/f = BMI estimate/forecast. Source: Central Bank Of Jordan, BMI

GROWTH OUTLOOK FOR 2023

GDP By Expenditure Outlook

GDP GROWTH FORECASTS (JORDAN 2021-2026)

PRIVATE CONSUMPTION FORECASTS (JORDAN 2021-2026)

GOVERNMENT CONSUMPTION FORECASTS (JORDAN 2021-2026)

GOVERNMENT CONSUMPTION FORECASTS (JORDAN 2027-2032)

FIXED INVESTMENT FORECASTS (JORDAN 2021-2026)

NET EXPORTS FORECASTS (JORDAN 2021-2026)

External Trade And Investment Outlook

Jordan Outlook On External Position

NIIP Will Likely Remain In Negative Territory

Source: CBJ, BMI

f = BMI forecast. Source: CBJ, BMI

JORDAN - BREAKDOWN OF EXPORTS (2021)

Source: CBJ, BMI

JORDAN - BREAKDOWN OF IMPORTS (2021)

Source: CBJ, BMI

CURRENT ACCOUNT BALANCE FORECASTS (JORDAN 2021-2026)

Monetary Policy Outlook

Jordan's Inflation Will Remain Subdued Through 2024

CBJ Will Hold The Policy Rate Until Mid-2024

Rising Lending Rates Will Ease Price Growth

Source: CBJ, US Federal Reserve, BMI

Fading Base Effects From Hike In Electricity Prices

Source: DOS, BMI

Lower Commodity Prices Will Soften Price Growth

Stable Inflation In 2024

f = BMI Forecast. Source: DOS, BMI

f = BMI forecast. Source: National sources, BMI

Monetary Policy Framework

Inflation Pressures Will Remain Moderate

f = BMI forecast. Source: CBJ, BMI

Exposed To Global Oil And Fuel Prices

Source: CBJ, BMI

MONETARY POLICY FORECASTS (JORDAN 2021-2026)

Fiscal Policy And Public Debt Outlook

Structural Fiscal Position

Further Fiscal Consolidation Will Prove Hard To Implement

f = BMI forecast. Source: CBJ, BMI

Debt Burden Will Stabilise, But Will Remain High

e/f = BMI estimate/forecast. Source: CBJ, BMI

CENTRAL GOVERNMENT REVENUES AND EXPENDITURE (JORDAN 2021)

Source: CBJ, BMI

FISCAL AND PUBLIC DEBT FORECASTS (JORDAN 2021-2026)

FISCAL AND PUBLIC DEBT FORECASTS (JORDAN 2027-2032)

Expanding Private Sector Offers Potential

External Dynamics Pose Upside Risk

Steady Growth Over The Long Term

e/f = BMI estimate/forecast. Source: CBJ, BMI

LONG-TERM MACROECONOMIC FORECASTS (JORDAN 2023-2032)

Broad Political Stability Ahead In Jordan, Despite Elevated Risks

Jordan Faces Social Unrest Risks