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Jordan, Lebanon and Syria Business Forecast Report Q3 2011

Jordan, Lebanon and Syria Business Forecast Report Q3 2011

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Meta Description JLS: Stumbling Through The Regional Crisis
The growth outlook across the Levant has changed for the worst in recent months, and
Publisher Business Monitor International
Date of Report Jun 28, 2011
Quick Overview
JLS: Stumbling Through The Regional Crisis
The growth outlook across the Levant has changed for the worst in recent months, and we have downgraded our 2011 real GDP growth forecasts for Jordan, Lebanon and Syria accordingly. Large-scale violent unrest in Syria is a particular concern, and will not only push that economy into recession, but will also add to strains on neighbouring
Jordan and Lebanon through a potential influx in refugees, and heightened investor risk aversion. External conditions paint a mixed picture in this regard, with higher commodity prices likely to lead to a surge in import bills on the one hand, while on the other hand the uptrend in oil prices in should result in an increase in remittance inflows from the Gulf. The key question going forward will be to what extent the security situation deteriorates over the coming months, which will likely see foreign investors remain at bay for the foreseeable future.
The outlook for Lebanon’s economy over the coming quarters has become decidedly less optimistic since the start of 2011. Although we had previously highlighted how external headwinds threatened to derail growth momentum, even we were caught slightly off guard regarding the extent to which the regional and global environment would weigh on economic activity. As a result, we now project real GDP to expand by 3.3% this year, following an estimated 8.2% in 2010. While by no means a worst-case scenario given the extent of regional unrest concomitant with the ‘Arab Spring’, at the moment there is little to suggest that growth momentum will be able to remain within its long-term trend average around 6.0%.
The political crisis in Syria will have a significant negative impact on the country’s medium-term growth trajectory in our view, and consequently we have downgraded our core growth forecast to -1.3% and 2.8% for 2011 and 2012 respectively (from 4.4% and 5.0% previously). While it is still too early to predict the outcome of the current political situation, we note that growth will suffer under all possible circumstances. Our core forecasts are based on the assumption that the regime of President Bashar al-Assad remains in power, and we note that these projections would be extremely optimistic should the regime fall.
Following a series of political and economic reforms undertaken by the government in recent years, we maintain that Jordan’s long-term political outlook is among the most stable in the region. Nonetheless, we highlight that the social uprisings that emerged in the Middle East and North Africa at the start of 2011 are indicative of the threat that low living standards and lack of political freedoms – both features that Jordan shares with other states such as Syria – poses to the long-term sustainable stability.
Table of Contents
BMI Ratings
BMI Risk Ratings – Jordan............................................................................................................................................................6
BMI Risk Ratings – Lebanon.........................................................................................................................................................7
BMI Risk Ratings – Syria...............................................................................................................................................................8
Middle East – Ratings League Tables...................................................................................................................... 9
BMI Risk Ratings – Middle East Tables.................................................................................................................. 10
Executive Summary............................................................................................................................... 11
JLS: Stumbling Through The Regional Crisis ..................................................................................................... 11
Chapter 1.1: Political Outlook - Jordan................................................................................................. 13
SWOT Analysis........................................................................................................................................................ 13
Long-Term Political Outlook.................................................................................................................................. 14
Monarchy To Continue Ruling Over The Coming Decade
Following a series of political and economic reforms undertaken by the government in the recent years, we
maintain that Jordan’s long-term political outlook is among the most stable in the region.
GCC Expansion....................................................................................................................................................... 16
Morocco And Jordan In GCC : Initial Thoughts
Although the possibility of Morocco and Jordan joining the Gulf Cooperation Council (GCC ) has only been
vaguely touched upon by officials from either side, we believe the implications of future membership for both
sides are mostly positive.
TABLE: Implications for Morocco & Jordan........................................................................................................................................ 16
Chapter 1.2: Economic Outlook - Jordan.............................................................................................. 19
SWOT Analysis........................................................................................................................................................ 19
Economic Activity................................................................................................................................................... 20
Political Crisis Hurting Economic Growth Outlook
On the back of a faltering tourism sector and a weakening investment drive both domestic as well as foreign in
Jordan, we have revised down our real GDP growth forecasts for 2011 to 2.8% from 3.8%.
TABLE: JORDAN – ECONOMIC ACTIVITY.......................................................................................................................................................... 20
Monetary Policy....................................................................................................................................................... 21
Imported Inflationary Pressures To Rise
We believe the prospect of high commodity prices will continue to add to inflationary pressures in Jordan.
TABLE: Reassessing The Growth Outlook............................................................................................................................................ 21
TABLE: JORDAN – MONETARY POLICY............................................................................................................................................................ 22
Banking Sector........................................................................................................................................................ 23
Strong Recovery To Continue
Fiscal Policy............................................................................................................................................................ 24
Saudi Grant Reinforces Prospective GCC Expansion
Although not officially linked to the idea of GCC expansion, the US $400mn grant Saudi Arabia offered Jordan
in early June backs our view that Riyadh will attempt to bring Amman closer into its orbit.
Chapter 1.3: 10-Year Forecast - Jordan................................................................................................ 27
The Jordanian Economy To 2020........................................................................................................................... 27
Exports Driving Long-Term Growth
Stable export growth and an expanding private sector will underpin Jordan’s economic progress over our
ten-year forecast period.
TABLE: JORDAN Long-Term Macroeconomic Forecasts.................................................................................................................... 27
Chapter 1.4: Business Environment - Jordan...................................................................................... 31
SWOT Analysis........................................................................................................................................................ 31
Chapter 2.1: Political Outlook - Lebanon.............................................................................................. 33
SWOT Analysis........................................................................................................................................................ 33
Domestic Politics.................................................................................................................................................... 34
New Cabinet: Initial Thoughts
The formation of a new Hizbullah-backed cabinet in Lebanon has raised significant questions surrounding
the future direction of policy formation in the country.
TABLE: Key Ministries..................................................................................................................................................................................... 34
Long-Term Political Outlook.................................................................................................................................. 36
Political Upheaval Inevitable In The Long Term?
Political stability will remain hard to come by in Lebanon over the coming decade.
Chapter 2.2: Economic Outlook - Lebanon........................................................................................... 39
SWOT Analysis........................................................................................................................................................ 39
Economic Activity................................................................................................................................................... 40
All Signs Point To Slowdown
Lebanon’s economy is set to slow through 2011 and into 2012, as a combination of elevated commodity prices
and a spike higher in political risk weighs on consumption and investment patterns.
TABLE: LEBANON – ECONOMIC ACTIVITY....................................................................................................................................................... 40
Balance of Payments.............................................................................................................................................. 42
Current Account Deficit Remains A Key Risk
Lebanon’s gaping current account deficit is forecast to widen further in 2011 concomitant with higher energy prices
and a slowdown in tourism receipts.
TABLE: LEBANON – CURRENT ACCOUNT ........................................................................................................................................................ 42
Chapter 2.3: 10-Year Forecast - Lebanon ............................................................................................ 45
The Lebanese Economy To 2020........................................................................................................................... 45
Long-Term Growth Depends On Structural Reforms
Lebanon’s economy will face a host of structural challenges in attempting to meet its long-term growth potential,
with a massive infrastructure deficit, elevated public debt load, and ongoing political risk weighing on our outlook
through 2020.
TABLE: LEBANON Long-Term Macroeconomic Forecasts................................................................................................................. 45
Chapter 2.4: Key Sectors - Lebanon ..................................................................................................... 49
Pharmaceuticals ..................................................................................................................................................... 49
TABLE: Generic Drug Sales Indicators.................................................................................................................................................. 50
TABLE: OTC Medicine Sales Indicators.................................................................................................................................................... 52
SWOT Analysis........................................................................................................................................................ 53
SWOT Analysis........................................................................................................................................................ 55
Domestic Politics.................................................................................................................................................... 56
What If Assad’s Regime Falls? Scenarios Assessed
Ongoing protests in Syria could conceivably end up toppling President Bashar al-Assad, or plunge the country
into civil war.
Regional Outlook..................................................................................................................................................... 58




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