It is important to note the new quarterly economic growth figures and the
sources of growth to determine the direction of the economy. New information
released by the Department of Statistics points to a continued slow
recovery. So, is Jordan heading toward
“stagflation” (a mix of economic stagnation and inflation) as most pundits are
predicting? This is not an inevitability yet.
اضافة اعلان
Preliminary estimates show that the Jordan’s economy
achieved higher growth rates during the first quarter of 2022 compared to the
first quarter of 2021. In terms of real economic growth (growth after taking
away the effect of price increases and decreases, i.e., with fixed prices), the
economy grew by 2.5 percent in real terms in the first quarter of 2022.
The economic growth rate was much higher than that
of the first quarter in 2021, which was 0.3 percent, and those of the first
quarters of 2020 and 2019, which were 1.3 percent and 2.0 percent respectively.
However, the growth rates in the second, third and fourth quarters of 2021 were
3.2 percent, 2.7 percent and 2.6 percent. The overall growth rate in 2021 was
2.2 percent. Therefore, the first quarter of 2022 has not done badly relative
to the same periods in the last three years. Also, it was still higher than the
overall growth rate in 2021.
The sectors that caused the growth were those most
affected by the pandemic: hotels and restaurants, which grew by 6.8 percent,
construction (5.3 percent), mining and quarrying industries (5.1 percent), and
the finance, insurance and business services sector (4.3 percent), which, by
the way, was the least affected by COVID.
It is also relative to compare the sector growth
rates in 2021 to the current year to determine whether continuities do exist.
The sectors that grew the most in the fourth quarter of 2021 were: construction
(6.1 percent), mining and quarrying (5.6 percent), transport, storage and
communications (3.9 percent), and wholesale, retail trade, restaurants and
hotels sector (3.5 percent).
Note that hotels and restaurants are late first
comers, which indicates a strong rebound in tourism. Construction growth is
also strong, yet it decreased slightly and may decrease even more as the cost
of materials rises. Mining and quarrying, while still growing significantly,
showed a relative decrease. However, in the aftermath of the Russia-Ukraine
war, mining will possibly lead the growth for the rest of 2022 at least.
Fiscal policy, however, can come into play by lowering taxes, fees, and customs, and by increasing whatever subsidies there are on basic commodities. However, given the state of the budget, this is unlikely to happen.
In addition to rising growth rates, unemployment has
been falling. The unemployment rate in the first quarter of 2021 was 25
percent, and it is now (for the same period in 2022) 22.8 percent, a drop of
2.2 percentage points. However, such an improvement does not warrant
celebration, as the rate is still high and unprecedented in over 30 years.
Inflation as
measured by the consumer price index also increased in June of this year by
4.39 percent relative to the same month in 2021. The rise was mainly attributed
to the increase in the price of several groups of items: fuel and lighting
(1.34 percent); transportation (0.90 percent); meat and poultry (0.49 percent);
dry and canned vegetables and legumes (0.25); and culture and entertainment
(0.17 percent).
As such, both the economic and unemployment rates
validate an economic recovery, not stagnation. Furthermore, data so far
indicates a rising inflation rate, which most likely will be around 6 percent
this year. The government will not be
able to counter the projected inflation because imports make up close to 60
percent of the GDP and their prices are determined overseas. Hence, monetary
policy is ineffective when it comes to inflation.
Fiscal policy, however, can come into play by
lowering taxes, fees, and customs, and by increasing whatever subsidies there
are on basic commodities. However, given the state of the budget, this is
unlikely to happen.
Most
interestingly, combining the two observations does not mean that Jordan is
heading toward stagflation. While most countries are facing stagflation, Jordan
may not. In fact, recovery may still persist, even though at a slow pace; and
inflation will be there.
Note that the term stagflation was coined during the
mid-1970s to describe the phenomenon that emerged at the tail end of a global
oil supply shock and the Nixon administration’s arguably failed policy response
at the time, which further exacerbated the effect of the supply shock.
Policy makers in Jordan should be aware that a
stagflation is not a foregone deal. For starters, Jordan did not come to enjoy
the strong rebound other countries did through their expansionary fiscal and
monetary policies. Therefore, policies should not act as if the recovery would
slow down further, making Jordan suffer from the affliction of other countries.
On the contrary, the thinking should focus on greater economic growth.
Yusuf Mansur is CEO of the Envision Consulting Group and
former minister of state for economic affairs.
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