The overall Purchasing Managers’ Index, known by its Farsi acronym Shamekh, for Iran’s economy settled at 54.73 in the month ending March 20, 2021, from 53.73 in the month ending Feb. 18, indicating an improvement of 1.86%.
A report by the Statistics and Economic Analysis Center of the Iran Chamber of Commerce, Industries, Mines and Agriculture, the sponsor and coordinator of the survey, shows the index hit 18-month high (since the beginning of PMI reporting by the center) for the month under review.
The headline PMI is a number from 0 to 100, such that over 50 shows an expansion of the economy compared with the previous month. A PMI reading under 50 indicates contraction and a reading of 50 implies no change.
PMI is an index of the prevailing direction of economic trends, which provides information about business conditions to company directors, analysts and purchasing managers.
According to the report, the “business output” sub-index increased from 50.01 in the 10th month (Dec. 21, 2020-Jan. 19) to 56.71 in the 11th month (Jan. 20-Feb. 18) to 58.39 in the 12th month (Feb. 19-March 20.)
The “new orders” sub-index jumped from 43.99 in the 10th month to 53.43 in the 11th month to 55.52 in the 12th month.
The “supplier deliveries” sub-index, which measures how fast deliveries are made, increased from 57.11 in the month ending Jan. 19 to 57.99 by Feb. 18 and to 59.67 by March 20.
The “raw materials inventory” sub-index decreased from 49.47 in the month ending Jan. 19 to 48.26 in the month ending Feb. 18 to 46.87 in the month ending March 20.
The PMI reading of “employment” sub-index rose from 48.09 in the month ending Jan. 19 to 49.99 in the month ending Feb. 18, but fell to 49.17 in the month ending March 20.
To calculate PMI, seven secondary criteria were also surveyed by the center, namely “raw material purchase prices”, “warehouse inventory”, “exports”, “product price”, “fuel consumption”, “sales” and “production expectations”.
The “raw material purchase prices” sub-index increased from 72.76 in the month ending Jan. 19 to 79.72 in the month ending Feb. 18 but slid to 78.56 in the month ending March 20.
The “warehouse inventory” sub-index improved from 48.85 in the month ending Jan. 19 to 49.29 in the month ending Feb. 18, but dropped to 47.01 in the month ending March 20.
The “exports” sub-index rose from 43.46 in the 10th month to 47.56 in the 11th month to 47.80 in the 12th month.
The “prices of manufactured products or services” sub-index increased from 56.34 in the month ending Jan. 19 to 58.12 in the month ending Feb. 18 to 59.12 in the month ending March 20.
The “fuel consumption” sub-index fell from 57.65 in the month ending Jan. 19 to 54.72 in the month ending Feb. 18, but rebounded to 57.88 in the month ending March 20.
The “sales” sub-index improved from 47.86 in the month leading to Jan. 19 to 53.72 in the month ending Feb. 18 to 60.30 in the month ending March 20.
The sub-index entitled “business output forecasts for the following month” dropped from 60.95 in the month ending Jan. 19 to 58.92 in the month ending Feb. 18 to 44.57 in the month ending March 20.
The overall PMI increased from 48.83 in the month ending Jan. 19 to 53.73 in the month ending Feb. 18 to 54.73 in the month ending March 20.
PMI, among the most precise indicators showcasing a country’s economic condition, was first devised by the Institute for Supply Management in the United States in 1948. It is calculated as (P1 * 1) + (P2 * 0.5) + (P3 * 0) where P1 is the percentage of answers reporting an improvement, P2 is percentage of answers reporting no change and P3 is percentage of answers reporting a deterioration.
Reports on Iran’s GDP Growth
Preliminary estimates by the Central Bank of Iran show Iran’s gross domestic product in the first nine months of last Iranian year (started March 20, 2020), using constant prices of the year ending March 2012 registered a 2.2% year-on-year growth.
Economic growth, excluding oil, expanded by 1.9%, according to CBI.
The central bank’s sectoral breakdown of growth rates shows that the “agriculture”, “oil” and “industries and mining” groups experienced a respective growth rate of 4.6%, 3.9% and 6%.
The services sector was the main laggard of economic growth with 0.3% contraction.
Construction, which is a subsector of “industries and mining” group, expanded by 3.6%.
The CBI report came after the governor of the Central Bank of Iran announced that Iran’s economy came out of recession following two consecutive quarters of growth.
“The positive growth in the second quarter of the current fiscal year [June 21-Sept. 21, 2020] was re-experienced in the third quarter [Sept. 22-Dec. 20, 2020],” Abdolnasser Hemmati wrote in an Instagram post.
According to the CBI Chief, Q2 saw Iran’s GDP rise by 3.9% compared with the corresponding period of the year before.
“Without taking oil production into account, growth stood at 2.9%. I can confidently say today that Iran’s economy has weathered tough sanctions and the ensuing recession, as it is repositioned on the path to growth,” he added.
He noted that the growth experienced by Iran’s economy is especially important since the country has been grappling with the Covid-19 pandemic and the US maximum pressure campaign in recent years.
His account of GDP growth comes after the Statistical Center of Iran put Q3 growth at 0.8%.
Growth excluding oil was at 0.2% during the three-month period, according to SCI.
Details of the center’s report show the “agriculture” sector saw a 5.5% expansion; “industries and mining” grew by 3.7% and “industries and mining sector excluding oil” expanded by 3.1%. The “services” sector, however, contracted by 1.8% during the third quarter of the current year. “Construction”, which is a subsector of “industries and mining” group, expanded by 8.5%.
The SCI report also showed Iran’s gross domestic product contracted by 1.2% during the nine-month period leading to Dec. 20, 2020 (Q1-3) compared with the corresponding period of the year before.
Economic growth, excluding oil, saw a 1% decline, according to the center, which noted that the nine-month period saw the “agriculture”, “industries and mining”, and “industries and mining (excluding oil)” sectors experience growth rates of 3%, 0.8% and 2.5% respectively. The services sector contracted by 3.3% and the construction subsector expanded by 3.9%.
The Statistical Center of Iran previously reported that Iran’s gross domestic product saw a contraction of 1.9% in H1 (March 20-Sept. 21). Economic growth, excluding oil, stood at -1.3%. Only the “agriculture” and “industries and mining, excluding oil” sectors experienced growth with 1.7% and 2% respectively. The “industries and mining” declined by 0.7% and “services” sector contracted by 3.5%.
SCI also reported economic growth in the second quarter of last year (June 21-Sept. 21): Iran’s GDP expanded by 0.2% in Q2 while it shrank by 0.2% excluding oil. The “agriculture” sector saw a 2.7% expansion; “industries and mining” 4% while “industries and mining sector, excluding oil” expanded by 4.2%. The “services” sector, however, contracted by 3% in Q2.
However, as the Central Bank of Iran reported economic growth, excluding oil, stood at 1.4% and when factoring in the oil sector, it increased by 1.3% in the first six months of last year compared with the same period of the year before.
“Economic growth, including oil sector, stood at -2.9% and 5.1% in the first and second quarters respectively,” Hemmati had said.
According to CBI, the “industries and mines” group registered the highest economic growth (using constant prices of the year ending March 2012) in Q1 (March 20-Sept. 21) with 5.4%. This is while the services group contracted by 0.2% in H1 to post the sharpest decline among economic groups.
The CBI breakdown of H1 economic growth rates showed that the sectors of agriculture and oil expanded by 4.4% and 0.8% respectively. Within the “industries and mining” group, the mining subsector grew by 3.5%; “industry” by 6.7%; “electricity, natural gas and water” by 4.5% and “construction” by 4.1%.
Within the services group, the “commerce, restaurant and hoteliering” subsector contracted by 0.3%; “transportation, warehousing, and communications” shrank by 0.6%; “services by monetary financial institutions” expanded by 11.9%; “professional real-estate services” grew by 1.1%; “general services” contracted by 5.2%; and “social, personal and home services” shrank by 10.2% in H1.
According to SCI, gross domestic product saw a contraction of 3.5% in Q1 (March 20-June 20, 2020) year-on-year. Economic growth, excluding oil, stood at -1.7%. A sectoral breakdown of growth rates in the report shows only the agriculture sector experienced growth with a meager rate of 0.1%. The industries and services sectors contracted by 4.4% and 3.5% respectively.
The Central Bank of Iran came up with different figures.
According to Hemmati, Iran's gross domestic product contracted by 2.8% in Q1 (March 20-June 20) compared with the corresponding period of the year before.
“A sectoral breakdown of growth rates shows the agriculture sector experienced 3.8% growth, and the industries and mining sector expanded by 2.5%, but the services sector contracted by 1.6%, which was quite predictable following the outbreak of coronavirus and restrictions imposed to prevent the spread of the disease,” he wrote in an Instagram post.
Hemmati put Q1 economic growth, excluding oil production, at -0.6%. Iran’s economy is recovering from the pandemic shock. When compared with sanctions-free countries, which only had to deal with the coronavirus, Iran’s economic performance is promising, he said.
IMF Forecast
In its new World Economic Outlook report titled “Managing Divergent Recoveries”, IMF put Iran’s GDP growth in 2020 at 1.5%. Projection for 2022 is at 2.1%.
According to IMF, the country experienced a 13.4% growth in 2016, the year Iran signed a nuclear deal with world powers, formally known as the Joint Comprehensive Plan of Action, and international sanctions against the Islamic Republic were lifted.
The massive growth was followed by a further 3.8% rise in 2017. But with the withdrawal of the US from JCPOA under the administration of Donald Trump and introduction of a new round of sanctions, the Iranian economy shrank by 6% and 6.8% in the following two years.
In its preface, the IMF report refers to implications of Covid-19 for the world economy and says: “We are now projecting a stronger recovery in 2021 and 2022 for the global economy compared to our previous forecast, with growth projected to be 6% in 2021 and 4.4% in 2022. Nonetheless, the outlook presents daunting challenges related to divergences in the speed of recovery both across and within countries, and the potential for persistent economic damage from the crisis.”
“The divergent recovery paths are likely to create significantly wider gaps in living standards between developing countries and others, compared to pre-pandemic expectations. Cumulative per capita income losses over 2020–22, compared to pre-pandemic projections, are equivalent to 20% of 2019 per capita GDP in emerging markets and developing economies (excluding China), while in advanced economies the losses are expected to be relatively smaller, at 11%. This has reversed gains in poverty reduction, with an additional 95 million people expected to have entered the ranks of the extreme poor in 2020, and 80 million more undernourished than before.”
Besides the pandemic, Iran’s economy has been grappling with the US sanctions under the Trump administration. The new government led by Joe Biden is looking to revive JCPOA.
