Jordan: Tight times for retail

Uncertainty over the economy’s medium-term outlook, combined with concerns over regional instability, are likely to result in a subdued 2013 for Jordanian retailers, with many indicators pointing to conservative spending by consumers through the year.

Jordan’s state budget for 2013, which emphasises austerity, will likely concern retailers regarding their prospects. The budget aims to reduce the deficit from 7.9% in 2012 to 5.4%, a result the government hopes to achieve by lowering recurrent spending by more than 2%. This tightening will affect the wages for state employees, with limited pay increases expected and restrictions on new hirings. That in turn will impact consumer spending.

The bar for economic growth in the budget was also set low, with GDP forecast to expand by around 3%, in line with the rate of increase in 2012, though below the projections of the IMF, which in December issued a report stating that the economy would lift by 3.5% this year.

Another factor likely to affect the retail sector will be inflation. The prices of many goods and services are expected to rise in 2013, in part due to the reduction in the state fuel subsidy in November, which saw the cost of some fuels increase by up to 50%. As yet, the full impact of these increases has not been passed on to consumers, but Jordan’s Foodstuff Traders Association (FTA) has warned that the effect of higher freight charges will be felt in the coming months. Samer Jawabreh, the president of the FTA, told English-language daily The Jordan Times on December 31 that local food prices would rise by 35%.

With the price of gas climbing and the government seeking to offset the losses of state-backed National Electric Power Company through electricity price increases, there will be further pressure on retailers to raise prices to compensate for their higher utilities costs. While the IMF has forecast consumer inflation to increase at a modest 3.9%, down from 4.5% in 2012, this figure could be optimistic if the full effect of fuel and electricity price rises flow into the retail market, with some estimates suggesting inflation could hit 7% in 2013.

The ongoing conflict in neighbouring Syria could also affect the retail sector, as consumers are wary of making shopping commitments at a time of uncertainty in the region. The expense of supporting the 280,000 Syrian refugees the Jordanian government says are currently in the country is also a drain on the budget, siphoning funds away from programmes intended to stimulate growth and economic activity.

All of these concerns have weighed down on the public. According to a November survey of consumer sentiment in Jordan, carried out by the Middle East job website Bayt and research firm YouGov, consumer confidence is well down, and expectations for the coming year are negative.

According to the survey, 11% of Jordanian respondents believed it is a good time to buy durable goods, well below the regional average of 15% and above only Lebanon and Syria, with 10 and 7%, respectively. More than 50% of those Jordanians surveyed said it was a bad time to make purchases of durables, while 77% said their incomes were not keeping pace with the cost of living. When asked for their views on the cost of living, 54% of respondents from Jordan said the situation would get worse in the coming year. Only Syrians had a more negative outlook.

With a generally pessimistic forward outlook, it is unlikely many Jordanians will spend beyond their means. According to Qassem Hammouri, a professor of economics at Yarmouk University, only a few households will be able to further cut outlays if inflation breaks out of its predicted band. In an interview with The Jordan Times in late December, Hammouri said some 40% of Jordanians no longer had any fat to trim from their household spending, as their present incomes did not meet current needs.

While both the government and the IMF are forecasting GDP to expand this year, consumers appear to be less confident, meaning retailers may have to tighten their own belts and put any plans for expansion on hold until Jordanians can better assess which way the economy is moving.