Iraqi Conflict To Stymie Jordanian Exports
BMI View: Iraq's political crisis adds another headwind to the Jordanian export sector, and will complicate Amman's efforts towards energy diversification. 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.
The prospect of long-term political instability in Iraq adds another headwind to the Jordanian export sector, which is already struggling to recover from the disruptions to regional trading activity engendered by the Syrian conflict. Our baseline view is that Iraq's political crisis will continue over the coming years, with Baghdad lacking the means to retake the country's western and northern regions following their takeover by radical jihadist group Islamic State (IS, previously known as ISIS) and other Sunni insurgents in June. We recently revised downward our 10-year growth forecasts for Iraq's economy, and expect the country's consumer spending, government consumption, and fixed investment to be hard hit by the violence over the coming quarters (see chart below).
The Iraqi market, while more vital to Turkey (to which Iraq represents the prime oil supplier and second largest export destination behind Germany), has also assumed significant importance for Jordan in recent years. Iraq absorbed 18% of total Jordanian goods exports in 2013 - the largest share and up from 13% in 2008 - on the back of demand for a wide variety of Jordanian products, including foodstuffs, electronics, and other manufactured goods. Moreover, the trade relationship between the two countries is firmly tilted in Jordan's favour, having resulted in trade surpluses for the Kingdom throughout the past decade. The surplus rose to a record high of JOD614.5mn (USD866.6mn) in 2013, compared with an overall trade account deficit of JOD8.1bn during that year.
|Iraq's Outlook Significantly Impaired|
|Iraq - Real GDP Growth, %|