Domestic Economy

Iranian Economy on Growth Path

Iranian Economy on Growth PathIranian Economy on Growth Path

The Iranian economy grew during the last Iranian year (March 2015-16), data released by the Statistical Center of Iran show.

The economy, excluding its oil sector, nudged to 0.9% as growth in the agricultural sector negated the contraction of industrial output.

Agriculture held Iran from dipping back into recession with a 5.4% rise in output. The service sector stalled, as it edged up in output by 0.2% compared to a year before. Still services were far better off than industry.

The industrial sector contracted 2.2% during the year, as weak consumer spending and lack of adequate financing ate away the output.

Many economists fear a double dip recession, though the lifting of sanctions is expected to boost growth. The Iranian economy emerged from recession two years ago with a 3% gross domestic product growth.

The rebound in economic output followed two years of recession when the economy contracted 1.9% and 6.6% back to back.

This year, however, with the removal of western sanction–imposed against Iran's nuclear energy program–the economy is widely expected to grow more, though the magnitude of the effects of sanctions relief is debated.

“The implementation of JCPOA bodes well for the outlook. Higher oil exports, along with lower costs of trade and financial transactions, as Iranian banks reconnect to the international financial system, would help support the economy, with real GDP growth projected at 4-4.5% over the medium term," David Lipton, first deputy managing director of the International Monetary Fund, said at the conclusion of his visit to Iran on Wednesday.

Foreign investment is central to the prospects of Iran's economic growth. President Hassan Rouhani says the country needs up to $50 billion in foreign investments each year to achieve an annual growth of 8%.

However, many question the likelihood of hitting this ambitious growth target. Already, the initial hype of sanctions relief has given way to skepticism and impatience about what was initially hoped to happen. Banks have yet to establish connection with international giants, as most still avoid Iran for fear of crossing lines drawn by remaining US sanctions.

Front and center in Iran's economy is a brewing debt crisis in the banking system, which the government is trying to contain quietly. The ensuing shortage of liquid assets in the banking system has hiked borrowing costs and suppressed lending. Its effects have overshadowed enthusiasm about the economic turnaround anticipated from the removal of sanctions.

Low productivity and low consumer spending due to suppressed purchasing power is also tightening the screws on the industrial sector, which has been left without a domestic or foreign market.