The Central Bank of Jordan publishes regular studies through its Applied Economic Studies Journal, aiming to improve understanding of the country's economic performance and support better policymaking. One notable study, titled "Estimating Aggregate Demand in the Jordanian Economy," examines the structure of GDP and how different components of demand—like household consumption, investment, and government spending—shape the economy.

 

The study shows that private consumption, or the money households spend, dominates the Jordanian economy. In previous years, it made up 83 per cent of GDP. Although this figure dropped to 73.6 per cent in 2023, it is still quite high. This means the economy depends mostly on domestic spending, rather than on exports or productive investments. Such a consumption-driven model is fragile because it can quickly weaken if households reduce spending due to inflation, rising costs, or economic uncertainty.

 

Investment spending, which includes both public and private investments, contributes around 23 per cent of GDP. While this level is not extremely low, it falls short of what Jordan needs to grow its production base, generate more jobs, and lower its unemployment rate. The study highlights that private investment, in particular, remains weak. This reflects structural issues such as a challenging business environment and hesitancy to invest in long-term projects due to uncertainty or risk.

 

Government consumption, mainly spending on salaries, subsidies, and operational expenses, makes up about 17 per cent of GDP. These expenditures usually don’t generate long-term economic value. Instead, they place pressure on the public budget and reduce the government's ability to spend on capital or development projects that could stimulate growth and support productive sectors.

 

One of the most concerning findings is related to net exports, which represent the difference between exports and imports. The study shows that net exports made a negative contribution to GDP of -25.1 per cent. This figure improved in 2023 to -12.1 per cent, but the fact remains that Jordan imports significantly more than it exports. This suggests that local production is not strong enough to meet domestic demand or compete globally, leaving the economy vulnerable to shifts in trade conditions and exchange rates.

 

Given this situation, it is essential for the government’s economic team to understand the structure and drivers of aggregate demand in Jordan. Such insight is critical for making sound policy choices. They also need to acknowledge that economic growth remains fragile and sensitive to external shocks like imported inflation and disruptions in global supply chains. More fundamentally, the economy struggles with limited foreign income and a shrinking productive base, which reduces its capacity to create jobs and maintain steady growth.

 

In summary, Jordan’s economy relies heavily on consumption. It grows when people spend more, but investment and exports remain relatively weak. This imbalance limits long-term growth, increases exposure to economic shocks, and contributes to ongoing challenges like unemployment, trade deficits, and fiscal stress. To address these issues, Jordan needs to take several important steps. First, the government should redirect spending toward capital projects that support high-impact productive sectors. Second, education and vocational training programs should be better aligned with the needs of these sectors. Third, investment incentives must encourage local content and export capacity. Lastly, the country should adopt a flexible industrial policy that connects manufacturing with sectors like agriculture, mining, and tourism.These actions can help create a more balanced and resilient economy—one that produces more, exports more, and provides better opportunities for employment and growth.