Business cycle is the period of boom and bust in the level of economic activities. Research about Iran’s business cycles over the past three decades conducted by the Central Bank of Iran, shows that a boom in Iran might last more than two years. In other words, whenever economic activities start to expand, economists can expect that the upward movement in the economy would continue at least for two years.
The latest official reports demonstrate that economic expansion started this spring. Thus, good times are expected to continue at least until 2016. However, there is a risk that this timeframe would be short-lived.
There is a strong correlation between oil income and GDP in Iran’s economy. Most negative shocks in real output are usually caused by declining oil export revenues. Since oil prices have recently plunged more than 25 percent, real output could be harmed.
Declining oil income also influences the foreign exchange market. Fluctuations of the past years could return and harm price stability giving rise to higher inflation and price variability. Needless to say, both are incompatible with the norms of stable economic recovery.
Moreover, the government has demonstrated unwavering commitment to boosting the economy through its declared anti-recession plan of action. Although policymakers are eager to curb the mainstay on oil exports, the blueprint simply does not envisage the plunge in oil income. Hence, the recent downward spiral could well undermine the stimulus package. Recently, officials have tried to reassure the public that they care about budget deficits and are planning new financial instruments if necessary. They want to demonstrate that their economic roadmap is valid and applicable.
True, decrease in the international price of oil certainly undermines the recovery process. However, that is not the end of the story because the ‘comprehensive nuclear agreement’ now under discussion between Tehran the six big powers could help compensate the recent shocks in oil prices. The expansion that started earlier this year can and should continue under circumstances devoid of tensions between Iran and the West.
It can be argued that any outlook for Iran’s economy would be vague without the current levels of oil income.
But the same economy showed enough resilience when oil exports dropped to unprecedented lows from 2.5 million per day to 0.8mbpd. In short, the national economy in the past has seen massive shocks in oil export revenues and will overcome the present phase as it did in the past and under more trying conditions.
