IMF forecasts sustained growth for Iran’s economy

Financial Tribune- The International Monetary Fund in its latest World Economic Outlook report has projected that Iran’s real GDP will expand by 3.5% and 3.8% in 2017 and 2018 respectively. In 2022, the IMF estimates Iran’s economic growth will stand at 4.1%, the fund’s website reported.

Iran’s economy took off after the removal of international sanctions over the country’s nuclear energy program in early 2016. According to the report, Iran experienced an unprecedented 12.5% GDP growth in 2016.

The feat was made possible, mainly thanks to increased oil output after restrictions on crude sales were lifted as a result of sanctions removal. Government data show Iran’s crude oil production reached 3.8 million barrels per day by the end of the last fiscal year (March 20, 2017) from around 3 million bpd in the previous year.

Under sanctions, crude output fell to 2.5 million barrels daily and exports were limited to just above 1 million bpd to a few customers in Asia.However, Iran is allowed to pump an average of 3.8 million bpd by March 2018 under an OPEC deal aimed at eroding global inventories and lifting crude prices.

On average, Iran exported 400,000 barrels daily, or 64 million liters per day, of oil byproducts to buyers in the Middle and Far East in the fiscal 2016-17, up from around 220,000 bpd in the previous fiscal year.

Outbound shipments of oil byproducts are expected to rise by 200,000 barrels a day to 600,000 barrels per day in the current fiscal year, according to a report by the National Iranian Oil Products Distribution Company. However, as crude production is reaching the pre-sanctions level, there is not much room left to see growth in this sector. Statistics confirm this.

According to the Statistical Center of Iran’s latest quarterly report, the oil sector expanded by 4.6% in spring compared with the first quarter of the previous fiscal year, which is considerably less than last fiscal year’s staggering 61.6%.

The sectors of agriculture (fishing, forestry, husbandry and farming), industry (oil & gas extraction, mining, energy and construction) and services (hospitality, retailing, transportation, communications, education and health) stood at 3.1%, 4.9% and 8.3% respectively.

The IMF said the slowdown will have an impact on a wider Middle East and North Africa region.

“In the Middle East, North Africa, Afghanistan and Pakistan, growth is projected to slow significantly in 2017 to 2.6% (from 5% in 2016) on the back of a slowdown in the Islamic Republic of Iran’s economy after very fast growth in 2016 and cuts in oil production in oil exporters through March 2018 under the extended OPEC agreement,” reads the latest World Economic Outlook report.

However, growth is expected to rebound slightly the next year, IMF forecasts. “In 2018, growth is expected to increase to 3.5%, mostly reflecting stronger domestic demand in oil importers and a rebound of oil production in oil exporters.”

Inflation to Hover Around 10% The World Economic Outlook report forecasts that Iran’s inflation rate will stand at 10.5% and 10.1% in 2017 and 2018 respectively.

In 2022, the IMF expects inflation to go down below 10% and stand at 8.7%.

Inflation in Iran reduced to a single digit for the first time after about a quarter century in June 2016. It then followed a downtrend until it bottomed out at 8.6% in the middle of fall. However, it rose above 10% in the 12 months ending June 21 this year before starting to go down since August.

According to the latest report by the Central Bank of Iran, the average Producer Price Index in the 12 months ending Sept. 22, which marks the end of the sixth Iranian month, increased by 8.2% compared with last year’s corresponding period.

Deputy Economy Minister Hossein Mirshojaeian said late May that the overall inflation rate for the current Iranian year to March 20, 2018, is expected to remain below 10%.

“The government is planning to boost manufacturing and create jobs this year, but it does by no means want to give rise to runaway inflation. Our estimate is that a tight rein will be kept on inflation,” he said. The IMF has put Iran inflation rate in 2016 at 9%.

Unemployment at 12.4% The report is expecting the unemployment rate in Iran to stand at 12.4% in 2017 and 2018. It’s put the rate at 12.5% in 2016. The IMF data correspond to that of the Statistical Center of Iran.

According to SCI, 3.2 million Iranians were unemployed in the last fiscal year, that is 10.5% of men (or 2.19 million) and 20.7% of women (or 1.01 million) of ages 10 and above were jobless during the period. The youth unemployment rate, i.e. the proportion of the population between the ages of 15 and 29, stood at 25.9% last year, posting a 2.6% rise compared with last year, according to SCI.

Current Account Balance on Growth Path Iran’s current account, the IMF estimates, will hit 5.1%, 5.9% and 6.2% of GDP in 2017, 2018 and 2022 respectively. Current account is an important indicator about an economy’s health. According to Investopedia, it is defined as the sum of the balance of trade (goods and services exports less imports), net income from abroad and net current transfers.

Since the trade balance is generally the biggest determinant of the current account surplus or deficit, the current account balance often displays a cyclical trend. During a strong economic expansion, import volumes typically surge; if exports are unable to grow at the same rate, the current account deficit will widen. Conversely, during a recession, the current account deficit will shrink if imports decline and exports increase to stronger economies.

The Islamic Republic of Iran’s latest statistics show Iran’s non-oil foreign trade during the first half of the current Iranian year stood at $44.13 billion, indicating a 6% rise compared with last year’s corresponding period.

Non-oil exports during the period hit 58.63 million tons worth $20.54 billion, indicating a 3.2% decline year-on-year.

Non-oil imports amounted to 17.19 million tons worth $23.59 billion, up 15.37% YOY. Petrochemicals ($7 billion), followed by gas condensates ($3.52 billion), polyethylene ($750 million), liquefied propane ($686 million), light crude oil, excluding gasoline ($638 million), and methanol ($593 million) were the main exported commodities.

Imports mainly included rice ($996 million), field corn ($799 million), vehicles of engine displacement between 1500cc and 2000cc ($582 million), auto parts ($551 million) and soybean ($456 million).

According to the Central Bank of Iran, oil exports earned over $23 billion in H1. The IMF report expects Iran’s ratio of general government net lending/borrowing to stand at -2.2 in 2017 and 2018, up from last year’s -2.3. The ratio started to fall on a negative territory as of 2012.