UN Expects Iran’s Growth to Remain Above 5% by 2019

The United Nations has forecast a 5.3% economic growth for Iran in 2017 in its latest World Economic Situation Prospects. 

The growth is projected to settle at 5.1% and 5% over the next two following years respectively. 

“The economic situation in the Islamic Republic of Iran has improved visibly in recent years. In 2017, GDP growth remained relatively robust at 5.3%, after surging by an estimated 12.5% in 2016 due to a strong expansion of oil production and exports. GDP growth is expected to remain above 5% in 2018 and 2019, supported by easing monetary conditions and an improving external sector,” the report reads.

Iran’s economy took off after the removal of international sanctions over the country’s nuclear energy program in early 2016. The 12.5% growth 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.

 Growth Depends on FDI

The UN reports noted that future economic growth in Iran depends on attraction of foreign direct investment.

“However, the moderately favorable outlook is contingent on the capacity to attract foreign investments and is subject to significant geopolitical risks and uncertainties,” it said. 

According to Government Spokesman Mohammad Baqer Nobakht, foreign investment in Iran has seen a tenfold increase following the 2015 nuclear deal reached between Iran and six world powers. 

He said over $13 billion of foreign investment were made in Iran in the last fiscal year (March 2016-17).

Director General of Industries Ministry’s Foreign Investment Office Afrouz Bahrami said Iran attracted $24.95 billion in foreign investments during Sept. 2013-17, adding that Germany, China, Turkey, Austria, the UAE and France were the biggest investors in Iran during the four-year period. 

The most attractive industries for foreign investors in Iran were polymer and chemicals, steel, trade, motor vehicles, mining, plastic and medical devices. Alborz, Tehran, Khorasan Razavi, Fars, West Azarbaijan, Kerman, Zanjan and Qazvin were the most attractive Iranian provinces for foreign investments during the period.

As per the Sixth Five-Year Development Plan (2017-22), the government needs to attract at least $50 billion annually in foreign investment (direct, finance or joint investment) plus 5,800 trillion rials ($137 billion) in domestic investment to achieve an 8% economic growth target.

According to Nobakht, domestic investment has seen a 7% rise under the government of President Hassan Rouhani.

 World Bank, IMF Projections

The World Bank, in its latest “Iran’s Economic Outlook” report, sees stronger growth in 2018-19 “as investment growth turns positive and accelerates along with more political and economic stability”. It estimates a 3.6% GDP growth at constant market prices and 3.5% at constant factor prices for the Iranian economy in 2017. 

The estimates for 2018 and 2019 are at 4% and 4.3% at constant market prices and 3.9% and 4.1% at constant factor prices respectively.

This is while the International Monetary Fund 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 the economic growth will stand at 4.1%.

However, the Central Bank of Iran has forecast an economic growth of at least 5% for the current Iranian year that ends on March 20, 2018.

  Inflation to Hover Around 10%

The UN estimate for Iran’s inflation rate in 2017 is 9.6%. A 10.9% and 10.2% rate are forecast for 2018 and 2019 respectively.

The World Bank is expecting Iran’s inflation rate to reach 11.5%, 10.9% and 10.6% in 2017, 2018 and 2019 respectively.

The IMF forecasts that Iran’s inflation rate will stand at 10.5% and 10.1% in 2017 and 2018 respectively. In 2022, the fund expects inflation to go below 10% and stand at 8.7% in 2022.

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. It then rose above 10% in the 12 months ending June 21 this year, before starting to go down since August.

According to the Central Bank of Iran, the average goods and services Consumer Price Index for urban areas in the 12 months ending Nov. 21, which marks the end of the Iranian month of Aban, increased by 9.9% compared with last year’s corresponding period. 

CBI had put the inflation rate for the preceding month of Mehr, which ended on Oct. 22, at 9.8%. The overall CPI (using the Iranian year to March 2017 as the base year) stood at 109.8 in Aban, indicating a 1.3% increase compared with the previous month. 

The index registered a year-on-year increase of 9.6% compared with the similar month of last year. The CBI report came after the Statistical Center of Iran put Aban inflation at 8.4%.

Both IMF and World Bank have put Iran inflation rate in 2016 at 9%. The UN has put it at 8.6%.

 Unemployment Estimated at 11.3%

As for unemployment, the UN is expecting an 11.3% rate for 2017, unchanged compared to the preceding year.

IMF is expecting the unemployment rate in Iran to stand at 12.4% in 2017 and 2018. It put the rate at 12.5% in 2016. The IMF data correspond to that of the Statistical Center of Iran for the fiscal 2016-17. 

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.