Inflation predicted for post-pandemic Jordan, world

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A man walks with a bag in the streets of Amman on November 20, 2021. (Photo: Ameer Khalifieh/Jordan News)
AMMAN — The COVID-19 pandemic has brought the world to almost a standstill most of 2020 and 2021; Jordan is no exception. Unprepared, like every other country on the globe, for the ensuing global economic catastrophe, and stepping in uncharted territory, the Kingdom is bound to witness high unemployment, higher inflation, and slow economic growth.اضافة اعلان

One of the economic repercussions of COVID-19 is high inflation rates. The long periods of lockdown caused disruptions to international trade and resulted in serious demand and supply imbalances. Substantial fiscal stimulus measures during the pandemic have also increased consumer spending power in most advanced economies, contributing to the spike in demand, which, in turn, has pushed inflation higher.

Later, renewed demand for products and services outpaced the supply chains, which had severely slowed down during the lockdown. Oil and gas prices, which are the lead drivers of inflation across all commodities, have shot up, with predictable results.

The FAO Food Price Index in October 2021 showed an increase for the third straight month; it jumped 3 percent from the month before, reaching its highest level since July 2011.

Due to the chronically weak economic fundamentals of the Jordanian economy, a “worst-case economic scenario could push us toward a state of stagflation,” economist and former minister of state for economic affairs Yusuf Mansur told Jordan News.

“While we are not there yet, this would be a pretty nasty economic situation if it happens. ... A perfect storm of ruinous consequences,” he warned.
During economic stagnation and higher inflation or stagflation, GDP growth slows down to a snail’s pace or shri
nks, and unemployment increases while inflation continues to rise.
“Jordan’s economy has been in decline for 11 years and as such, the impact of this crisis is quite magnified,” Mansur said.

The Jordanian economy is more sensitive to global economic events than industrialized nations.

“More than 87 percent of our caloric intake and 93 percent of our energy consumption are imports, as is the case for most products like clothing, automotive and electronic,” adds Mansur.

Jordan’s balance of trade also continues to worsen. It was registered at $1.3 billion in August 2021, a substantial increase year-on-year. More so, statistics from the CEIC Leading Indicator website show dramatic drops in Jordan’s food and industrial production indices since 2011.

A good overall human-focused indicator of a country’s economic state is the Misery Index. It is an economic indicator created to determine how average citizens are doing economically. Rankings are calculated by adding the seasonally adjusted unemployment rate to the annual inflation rate.

Jordan ranked 31st on the Misery Index for 2020, between Malawi and Guinea, two African nations with per capita GDP much worse than Jordan’s. Logically, higher unemployment rate and worsening inflation reflect an abysmal economic and social state of a country.

Jordan’s unemployment rate has more than doubled since 2014, standing now between 20 percent and 25 percent.

“(It is) not good if inflation continues to rise alongside global rates,” Mansur added.

For Jordan’s middle class, inflation is still within normal limits, at 1.65 percent for the first 10 months of 2021; it is projected to reach almost 1.99 percent in 2022. However, if inflation rates worldwide continue to hang at the top of the curve, Jordan could experience serious economic troubles in 2022.

The forces pushing inflation up are pandemic-related and so they are temporary, and do not indicate a future trend, according to EU Parliament and US analysis.

Mansur agreed: “The expectation worldwide is that inflation rates would rise until mid-2022 and then taper out.”

The hardest hit by inflation in any economy are those in the lower-income segment. The pandemic has pushed poverty by about 38 percentage points among Jordanians, and by 18 percentage points among Syrian refugees, according to last year’s joint study by the World Bank and the UNHCR.

At Al-Madina Supermarket in Amman, a big busy supermarket, a representative of one of Jordan’s major product suppliers said: “We have been alerted by our international suppliers to prepare for more increases in prices in 2022, for most of the items we distribute.”

Prices are still within reasonable range for most items because shops were well stocked, adds the representative. A couple of shoppers at the supermarket agree with the representative’s price-point assessment.
In an interview on Jordan TV in November 2020, Jamal Al-Refaei, first vice chairman of the Amman Chamber of Commerce, agreed with Mansur. “The Jordanian economy was already suffering before (COVID-19), and the pandemic exacerbated the negative impact on our national economy.”

Refaei, however, hoped an incremental yearly increase of half a percentage point in economic growth rate over the 2 percent rate before the pandemic may indicate a softer blow than the one generally expected.

Still “such weak economic growth rates will not suffice for maneuvering the challenges of 2022,” he added. “Most experts are in agreement; and His Majesty has more than once cautioned the government to prepare well for next year.”

The pace of economic recovery is different for each sector, but overall, the return to normal will surely be slow paced. “Tourism’s recovery, for example, will probably take much longer than other sectors,” Refaei said.

“Honestly speaking, while the government has done a good job managing the health issues brought about by the pandemic, it had fallen short in addressing the economic crisis, leaving the burden of dealing with the pandemic on the shoulders of the private sector, which had continued to pay salaries during the government-enforced lockdowns,” he adds.

More recently, the government has announced a crisis-management strategy to induce economic growth.

“They have committed Jordan to a strategy headlined as a private-public partnership without consulting with us, the private sector,” said Refaei.

He is right. The International Monetary Fund (IMF) held virtual discussions with the Jordanian government, reaching agreement to broaden the tax base by reducing tax evasion and closing tax loopholes. However, there is no real change to Jordan’s economic strategic direction, as far as the private sector is concerned.

Most economists know what the government will not admit: that it is leaving markets to their own devices. With Jordan’s national spending hunkered down by the salaries of its massive public sector and foreign debt payments, there is really little the government can offer to mitigate the misery of the private sector, said Mansur.

“About 70 percent of government spending goes to public sector salaries; 20 percent to pension and 17 percent to servicing debt, ... so we are running a 7 percent to 8 percent deficit,” Mansur added.

Jordan’s national debt at over $45 billion had surpassed 101.8 percent of its GDP by June 2020; and “our debt will continue to grow,” said Mansur.

“The government, with its central bank, needs to be bolder in planning the future, forcing banks to lower interest rates for the private sector; open the market for migrant workers; create real-world incentives for foreign investment, and maximize its support for entrepreneurship,” Mansur said. “Only through increasing labor productivity will we be able to hasten the recovery of the Jordanian economy.”

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