IMF Expects Deeper Slowdown in Iran Economy

The International Monetary Fund expects Iran's economy to further shrink to -9.5% in 2019 from an estimated -4.8% in 2018.
IMF's latest World Economic Outlook report shows the country will experience zero percent economic growth in 2020.
The global lender had previously forecast Iran’s economy to shrink by 6% this year, but that estimate preceded Washington’s decision in April to end six months of waivers which had allowed Iran’s eight biggest oil buyers to continue importing limited volumes, Reuters reported.
"Iran, a large oil producer, saw its oil revenues surge after a 2015 nuclear pact agreed with six major powers that ended a sanctions regime imposed three years earlier over its disputed nuclear program. But new sanctions brought in after US President Donald Trump withdrew from that deal in 2018 are the most painful imposed by Washington, targeting nearly all sectors of Iran’s economy," Reuters wrote.
The fund said Iran, along with other emerging market economies, continues to experience “very severe macroeconomic distress.”
The report came after the World Bank said in an autumn update that Iran’s economy is expected to contract further by 8.7% in 2019-20 due to external shocks to oil and gas output.
Plummeting exports come after the expiration of US waivers to major importers of Iranian oil and tightening of banking restrictions in addition to new sanctions being imposed on the country’s petrochemical, metals, mining and maritime sectors, the WB report reads.
"The expected deterioration in economic growth would mean that by the end of 2019-20, the economy would be 90% of its previous size compared to just two years earlier. The oil sector decline, coupled with international trade and capital flow restrictions, has negatively influenced economic activity in key non-oil sectors, including automotive, machinery and construction, which have faced supply chain challenges and higher operational costs. Similarly, the GDP expenditure components are to be strongly influenced by the shock to exports. However, the simultaneous reduction in imports is expected to moderate part of the downward pressure on the trade balance and the current account."

High Inflation

The IMF report also expects consumer prices to rise to 35.7% in 2019 from an estimated 30.5% last year, but fall to 31% in 2020.
According to WB, consumer price inflation peaked at 52% YOY in May 2019 due to heightened economic uncertainty, inflationary expectations and strong depreciation of the rial in the preceding 12 months. 
"Inflation has been especially high for food items (e.g., 116% YOY for meat products in April) and disproportionately affected the rural population (e.g., in August 2019, 46% YOY in rural areas vs. 41% YOY in urban areas). By August 2019, the rial recovered around 40% of its open market value against the dollar compared to its historical low in September 2018. The relative stabilization of the rial in tandem with the passing of the shock effects from a year earlier has contributed to a slight easing of the inflation rate (42% YOY in August 2019)." 

Impact on Jobs 

As for unemployment, the IMF expects it to increase from estimated 14.5% in 2018 to 16.8 in 2019 and further to 17.4% in 2020. 
The World Bank said Iran's unemployment remains high at almost 11% while labor force participation rate slightly declined (YOY) to 40.6% in June quarter 2019 reflecting the labor market implication of the stagnant economy. 
"The gender gap in the labor market, especially in terms of participation and employment figures, remains high." 

Contrasting Domestic Reports

The two reports come as senior officials in Tehran talk about economic recovery saying the detrimental effects of US penalties are dying down.
Minister of Industries, Mining and Trade Reza Rahmani recently said the industry and mining sector posted  18% growth in the first six months of the current fiscal  year (started March 21) compared to the same period last year.
He said production of crude steel, finished steel, cement, and glass saw respective growth of 6.5%, 9.1%, 6%, and 13% during the period under review, IRNA reported.
"Macroeconomic indicators suggest improvement. Reports from every single enterprise confirm this," First Vice President Es’haq Jahangiri said recently.
Central Bank of Iran Governor Abdolnasser Hammati also says growth has returned to the non-oil sector.  
"The first three months of the current fiscal year saw the non-oil sector grow 0.4% compared to the corresponding period in the last Iranian year," the CBI chief wrote in a piece published on the CBI website.
"Although this growth is below potential capacity, it's a cause for hope, considering the negative growth rates of the three preceding quarters and beginning of the decline in inflation," he added.
Hemmati attributed the strengthening of the national currency to diminishing external shocks from sanctions and limits of the US "maximum pressure" campaign to stop the economy.
"To bolster this growth in the coming quarters and  give a boost to productive sectors, banks are committed to help fund the enterprises," he said, adding that banks further lend 1,000 trillion rials ($8.77 billion) to industries in the remainder of the current fiscal year (ends March 19, 2020).

Growth Engine 

Increase in agricultural production has been the main driver of economic growth registered for the first quarter of the current Iranian year.
The Persian-language economic daily Donya-e-Eqtesad reported that with 6.5%, the agriculture sector reported the highest growth among all domestic economic sectors in Q1. The rate for last year same period was 0.3%.
The significant boost in the agro industry owes largely to abundant rainfall at the beginning of the year.
Agriculture Minister Mahmoud Hojjati says Iran meets 85% of its demand for agro and farm products domestically.
An estimated $80 billion worth of farm products are produced in Iran every year, $75 billion of which are consumed domestically.
Director general of the Ministry of Industries, Mining and Trade's Food, Medicine and Toiletries Industries Department, Mehdi Sadeqi Niyaraki says 95% of the food industry is in private hands, noting that the sector accounts for 15% of the total industrial jobs.
The main cause behind the weak performance of the economy, however, has been the decline in oil production as a result of the new US sanctions.
It is estimated that oil production contracted 11% this spring. This means the overall economic growth experienced by the economy in the first quarter of the current year was near -5%.
Donya-e-Eqtesad estimates that the industrial and mining sector showed zero growth while the rate for last year's corresponding period was 0.1%.
The services sector grew marginally by just over 0%.
Iran's gross domestic product shrank by 4.9% in fiscal 2018-19 compared to the year before, the Statistical Center of Iran reported.
Economic growth, excluding oil, was -2.4%. Production in the industrial and agriculture sectors contracted by 9.6% and 1.5% respectively.
The services group posted a meager 0.02% growth.
The economy emerged from recession in fiscal 2014-15 with 3% growth after two years when it contracted 5.8% and 1.9% back to back, according to the Central Bank of Iran.
Growth in 2015-16 was put at -1.6% by the CBI and 0.9% by SCI. The CBI said growth in 2016-17 was 12.5% while the SCI says it was much lower at 8.3%.
Fiscal 2017-18 growth was 3.7% both the CBI and SCI reported.