|Jordanian economy recovers from 2003 blues but Is the boom sustainable ?
|Many sectors report strong growth in the first half of the year, especially as the effects of the war in Iraq fade
The Jordanian economy performed exceptionally well in the first half of 2004. Output growth registered its record high in over a decade, with real GDP growth reporting 7.2 percent, against 2.8 percent over last year's corresponding period.
It is important to mention that growth emanated from a weak first half 2003 base that was adversely affected by Iraq war spillovers and rising regional uncertainties. Based on the first half performance, it is estimated that growth could end the year within the 5 to 6 percent bracket, a still healthy performance in the context of excess economic capacity and important growth reserves.
The real sector witnessed a strong recovery over the first half, supported by a surge in exports, a rise in domestic demand, a dynamic touristic season and renewed confidence. The breakdown of the 7.2 percent growth over the different economic sector contributions shows that manufacturing accounted for a strong 2.2 percent share, followed by Transport and telecommunication with 2.0 percent, construction with 0.9 percent, trade, hotels and restaurants at 0.6 percent, energy at 0.4 percent and financial and real estate services with 0.3 percent. All other remaining sectors had a net share contribution of 0.6 percent.
The analysis of major real sector indicators likewise backs a strong activity pick-up in the first half of 2004. Indicators have reported strong upward movements, though at varying rates. Among those that saw high and significant growth rates, we mention imports with 37.1 percent year-on-year, exports with 33.1 percent, cement production with 20 percent, construction areas with 34.8 percent, merchandise at the port with 28.8 percent, tourism receipts with 18.1 percent and electricity consumption with 17.9 percent. While the contribution of each of those indicators to output growth remains confined, it is the concurrent aggregation of incremental value added of the different performance indicators that was behind the reported improvement in growth.
The productive sectors of agriculture and industry reported an improvement in activity over the first half of 2004, driven by a growing domestic demand and enhanced foreign trade. The agricultural sector grew by 3.6 percent over the first half, against a growth of 8.3 percent over the first half of 2003. Agricultural exports, however, progressed 90 percent over the period to JD 180 million ($254 million), triggered by rising domestic exports. Industrial exports grew by 41.6 percent over the same period. In parallel, the number of newly registered companies in industry over the first half was 346, up 46 percent over the first half of 2003.
An increasingly important factor behind the strong industrial performance pertains to the rise in the contribution of manufacturing to total exports. It contributed 2.2 percent to the real GDP growth rate, in view of its significant share in GDP (about 15 percent). The impressive growth in manufacturing was largely driven by the important increase in exports (especially textiles) from the Qualifying Industrial Zones (QIZs), which are allowed duty-free access to the U.S. market.
The construction sector grew 17.3 percent in real terms over the first half and contributed 0.9 percent to the real GDP growth rate. The construction sector saw 47 new firms established in the first half; they invested JD 2.6 million in capital.
This sector's growth is attributed to a revival in construction activity over the period, as shown in the rising number of construction permits, cement production and construction areas. Construction permits rose 29.3 percent over the first half relative to the corresponding period in 2003 and totaled 13,380, while cement production gained 20 percent in volume, amounting to 1.9 million tons. Construction areas covered 4,796 thousand square meters of land, up 34.8 percent from the corresponding half in 2003. Concomitant with this boom, bank credits to construction more than doubled, moving from JD 21 million over the first half of 2003 to JD 47 million over the corresponding period in 2004.
The trade and service sector was enhanced by the growth in domestic and foreign demand, in light of increased confidence, the recovery of trade with Iraq and tourism. The registered firms in the trade sector over the first half numbered 1,203 against 844 over the corresponding half of 2003. In parallel, newly invested capital in trade and services was JD 19.6 million - up 32.4 percent over the period.
Cleared checks, an important indicator of aggregate spending, rose 28.3 percent in the first half of 2004, to JD 7,906 million. The distribution of cleared checks by region shows the high concentration of activity in Amman, which accounted for about 94.6 percent of total clearing activity. Maritime activity also saw an improvement over the first half. Merchandise at the Aqaba Port rose 28.8 percent, to 10.1 million tons, while the number of ships was 1,373 units, up 7.3 percent.
Airport activity also improved. The number of passengers showed a slight progression compared to 2003 numbers, where it advanced by 1.4 percent to 4.226 million.
The tourism sector saw a dynamic activity over the first half, as foreigners regained their appetite for Jordan as a touristic destination after the Iraq invasion. Tourism receipts rose 18 percent over the first half to JD 255 million, as a result of a pick-up in tourism-related activities and in business and political travel associated with Iraq.
Mirroring the growth in tourism services, the trade, restaurant and hotel sector, which contributes to about 10 percent of GDP, grew by 6.2 percent over the first half against 3.9 percent over last year's corresponding period.
This report was issued by the Audi Saradar Group and is reprinted in The Daily Star with their permission
The Daily Star