The central Bank of Iran (CBI) reported this week that the economy expanded 4.6 percent in three months ending June 21 (first quarter of the Iranian year) compared to the same period last year. A recent report released by Economic Intelligence Unit (EIU) forecast that Iran’s GDP will grow by 1.7 percent in fiscal year 2014-15. The CBI report also suggests the economy could grow more than the EIU prediction. Truth be said, neither the EIU nor other economic think tanks had a clue that the Iranian economy would improve to the extent mentioned in the CBI report.
The new figure demonstrating resilience will attract renewed attention on Iran. However, one key question should be answered: is this the beginning of a positive trend or a single event? To get a better grasp of what is unfolding we should pay attention to some economic and political issues. First, one of the important developments in the present government is what Robert Lucas, an Economics Nobel Prize laureate, calls professionalization of economic policy. In other words, the administration has employed prominent Iranian economists as advisors. They can help guarantee implementation of prudent policies based on the structural and budget constraints the government faces.
Second, Iran’s international relations have visibly improved since the interim Geneva agreement between Tehran and the six world powers on the nuclear dossier. Although the deadline (Nov. 24) of the nuclear talks looms large, it is unlikely that past tensions, real or artificial, between Iran and the west would reemerge as was the case before the interim deal.
Third, price stability across the board has to a significant level alleviated economic risks encouraging investments. The CBI report says it grew 5.7% in Q1 compared to the same period last year.
Although it should be noted that the economy will expand with less speed during the rest of the year (ends March 2015), with the onset of winter, the present ground realities denote that economic growth would endure on the condition that no surprising or bad news emerges, especially those related to the complex nuclear talks with the P5+1. To sum up, the economic growth rate announced by the CBI says Iran’s economy will grow in the neighborhood of three percent in fiscal 2014-15. In other words, the economic plan of action of the Rouhani administration will bear fruit.
