Global monetary tightening has been spearheaded by the
Federal Reserve (Fed) — the central bank of the US — and the European Central
Bank (ECB). Both have been aggressively fighting inflation caused by the
Russia-Ukraine war, heightened post-COVID demand, and the disruption in supply
chains, which peaked in the US at 9 percent in June 2022, followed with some
lag by the euro zone at 10.7 percent in October 2022.
اضافة اعلان
While the US and the EU have been facing high economic
growth rates after the onset of COVID; Jordan has not. Here is a breakdown of
the possible impact of the global monetary policy on the Jordanian economy in
2023.
Interest rates
At the start of 2023, the Fed had
raised its federal funds rate by 425 basis points, and the ECB had raised its
key interest rates by 250 basis points. Jordan, with the peg of its dinar to
the US dollar, has followed the Fed policy almost perfectly. Moreover, with
additional rate increases by the Fed and the ECB, the Jordan Central Bank is
expected to increase the interest rate to its peak by June 2023.
While inflation has apparently
subsided in the US and EU and is expected to drop further in 2023, interest
rates have risen and Western economies do not seem to be heading toward a
recession. Meanwhile, Jordan, which was facing an extremely long (13-year)
depression as measured by the real per capita income, saw slight gains in terms
of growth rates in 2022. This marginal growth was possibly driven by the
increase in the value of potash and phosphate exports and a rise in tourism
receipts and remittances.
Hence, Jordan may seem to buck
the global trend so far, which should not be surprising since the Kingdom
benefits when the world goes into a recession as the prices of imports, which
are almost three times its exports, fall and thus provide a reprieve to
aggregate production and consumption. Yes, one would expect exports to also decline,
but two factors come into play here: Jordanian exports are mainly garments and
raw materials such as potash and phosphate; and the trade balance has been
markedly negative since the inception of the country.
Cost of debt
Jordan’s economic growth rate in
2023 will likely fail to meet expectations. It will decrease as both demand and
supply decrease with the rise of interest rates. Demand decreases as the final
prices of large ticket items (those that take up a significant portion of an
individual’s average income) become more expensive due to the increase in the
cost of debt. Already, the number of returned checks has risen, credit card
debt is on the rise, and savings have decreased as Jordanians have dipped into
their nest-eggs to spend.
Imports and production
Some imports will become more
expensive as the prices of certain commodities such as wheat may rise due to
shrinking supply. Jordan lucked out in 2022 as wheat purchases had been made
before the start of the Russian-Ukraine war. However, if the war goes on, the
cost of wheat imports will rise.
On the other hand, suppliers,
including current and would-be producers such as investors, will find
production more expensive, and will thus curtail their output. Given that
Jordan’s inflation is imported — 87 percent of all caloric intake and 93
percent of energy is imported — the upshot is a continued inflation rate with
greater stagnation.
Weakened
growth from costly consumption and production, and greater leakage due to
balance of trade expansion, which siphons added value from the GDP, could lead
to lower growth in 2023 than previously predicted. Let us hope that this will
not be the case.
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Jordan News
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