Many had predicted that Jordan would enter into a period of stagflation (stagnation
plus inflation) as a result of recent global developments. Such opinion was
based on lack of knowledge of the Jordanian economic story. And recent data
shows the falsity of such prediction.
اضافة اعلان
The term
stagnation gained infamy and prominence in the economic discourse in the 1970s.
The idea behind this phenomenon is that the price of a basic input (like oil or
energy, for example) is increased so suddenly that the producers increase
prices and lay off people, since the quantity demanded decreases.
The idea is not
new; traditionally, some economists used to attribute the increase in prices to
a rise in demand, which eggs producers on to produce more, hire more workers
and resources. In other word, the general view was that the rise in prices is
accompanied by economic recovery (higher growth and lower unemployment), not
stagnation.
I have always
maintained that when the global economy takes a downturn, the Jordanian economy
benefits. This is because Jordan is a net importer, with the size of imports
exceeding 60 percent of the GDP. It is, therefore, not necessarily true that
stagflation in the world would create stagflation in Jordan.
The Jordanian
economy grew by 2.9 percent in fixed prices in the second quarter of 2022. It
is a higher rate than the growth rate in the first quarter of 2022, but it is
lower than that in the second quarter of 2021, which is acceptable since 2021
was compared to a very bad reference year (2020, the COVID year).
The sources of
growth have been the mining and quarrying (basically phosphate and potash)
sectors, spurred by the growth in world demand for fertilizers as a result of
the Ukraine-Russia war; construction came a distant second, followed by
transport, storage and communications, retail, and restaurants and hotels.
To deal with stagflation in manufacturing, and possibly other sectors, the government must reduce the cost of production. Only by enhancing economic growth will the debt to GDP ratio fall. It is the old practices that have led to a 110 percent debt to GDP.
The unemployment
rate has been falling; it currently stands at 22.6 percent, which is an
improvement over the 25 percent rate in the last quarter of 2021. In fact, it
has been steadily falling since 2021.
Inflation as
measured by the Consumer Price Index for August 2022 has risen by almost 5.4
percent. This means that there is inflation in the country, which also means
that Jordan is not witnessing stagflation (rising unemployment and inflation
rates) as some have predicted. In fact, based on the data, Jordan is
experiencing mild signs of economic recovery (reduced unemployment, increased
growth, and rising prices).
Before moving
on, note that the value of the US dollar against other currencies has
increased. The Jordanian dinar, being pegged to the US dollar, has also gained
as non-dollar denominated imports became cheaper, and this should have pulled
the inflation rate downward. Yet, the current inflation rate is high because of
the government policy, which jacked up energy and transport prices.
Let’s look at
industry and see how it was affected by the so many convoluted internal and
external variables.
The General Index of Industrial Production Quantities
of August 2022 decreased by 0.53 percent, basically due to the decrease of 1.16
percent in the production index of manufacturing as measured by quantities.
Therefore, the industrial sector is facing, based on data, a rise in prices and
stagnation (stagflation). Hence, while the economy as a whole may be showing
some recovery, the industrial manufacturing sector, being energy and commodity
dependent, is facing stagflation, something to be investigated further and to
be pondered on by policy makers and analysts.
To deal with
stagflation in manufacturing, and possibly other sectors, the government must
reduce the cost of production. Only by enhancing economic growth will the debt
to GDP ratio fall. It is the old practices that have led to a 110 percent debt
to GDP ratio. Continuing the current practice is not the best option.
Yusuf Mansur is CEO of the Envision Consulting Group and
former minister of state for economic affairs.
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