Jordan and the West Bank and Gaza Business Forecast Report Q4 2014

NEW YORK, Sept. 30, 2014 /PRNewswire/ -- Core Views
We maintain that Jordan's long-term political outlook is one of the most stable in the region, with the monarchy having implemented a series of political and economic reforms in recent years. Nonetheless, the social uprisings that have emerged in the region since 2011 are indicative of the threat that low living standards and lack of political
freedoms pose to long-term stability. While we expect the regime to navigate through its current troubles, deteriorating economic conditions and public finances are reducing its margin of manoeuvre. We have revised down our growth forecasts for Jordan on account of the worsening political and security situation in Iraq. The Iraqi crisis will put severe pressure on the Jordanian export sector and will delay the tentative economic recovery that we had envisaged from 2015 onward. We now project real GDP growth of just 2.9% in 2014 and 3.4% in 2015.

We have scaled down our export growth forecasts for Jordan, and now forecast an average current account deficit of 9.8% of GDP between 2014 and 2018, compared with 7.9% previously. Jordanian industry will struggle against regional competitors over the coming years, weighed down by rising energy costs and multiple tax increases. That said, the government's ongoing energy diversification efforts should reap dividends for Jordanian firms over the longer term, while we see other countries increasingly scaling down
industrial subsidies going forward, evening out cost differentials. Given the progress made in Iraq and Syria by radical jihadist group Islamic State (IS), and with Syrian President Bashar al-Assad ensconced in a third term in office, the security risks confronting Jordan are set to remain prominent over the coming years.

Core Views
The formation of a Palestinian unity government in June 2014 marks a symbolic end to the long-running dispute between the rival Fatah and Hamas factions ruling the West Bank and Gaza Strip respectively. However, the reconciliation agreement will face major difficulties, as ideological differences between the two parties remain stark. Maintaining a central government over two geographically separate regions will be a massive challenge. The unity government will struggle to improve the Palestinian territories' lacklustre economic outlook.

We have revised downward our real GDP growth forecasts for the Palestinian territories, following Israel's offensive in Gaza over the summer of 2014. The fighting has severely damaged Gaza's infrastructure and industrial base, and we expect the Palestinian unity government to struggle with the reconstruction of the Strip. We forecast the West Bank and Gaza to contract by 0.7% this year in real GDP terms, before returning to limited growth of 2.3% in 2015. Israeli-Palestinian peace talks resumed in August 2013, but failed to progress past their April 2014 deadline. We maintain that despite efforts by US Secretary of State John Kerry, the current political configuration in Israel, combined with the increasing fragmentation of the Palestinian Authority, will hinder any progress in negotiations.

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