Domestic Economy

Gov’t Forecasts 7.7% GDP Growth, 7.6% Inflation

Mohammad Baqer Nobakht
Mohammad Baqer Nobakht

The government is forecasting a 7.7% GDP growth and a 7.6% inflation for the upcoming Iranian fiscal year (starting March 21, 2017).

This was announced by Mohammad Baqer Nobakht, the head of Planning and Budget Organization–a government body tasked with drafting the budget–in a press conference on Monday, IRNA reported. 

Nobakht is also the government spokesman.

The latest data on economic growth pertain to the first quarter of the current Iranian year (started March 20). Central Bank of Iran's Governor Valiollah Seif has put it at 5.4%, while the Statistical Center of Iran says the GDP grew by 4.4% in Q1.

The economy emerged from recession two years ago with a 3% growth. The rebound followed two years of recession when the economy contracted 5.8% and 1.9% back to back. The Iranian economy grew 0.9% in the last fiscal year, according to SCI.

Agriculture helped Iran from falling back into recession with a 5.4% rise in output. The services sector stalled, as it edged up in output by 0.2% compared to the previous year. Services, however, were far better than industries. 

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

The IMF forecasts that Iran's real GDP will grow by at least 4.5% in 2016-17. The World Bank forecasts 4.2% and 4.6% growth rates for Iran’s economy for 2016 and 2017 respectively.

The government has set an 8% annual growth target for the sixth five-year development plan (2016-21), mainly betting on growth in the oil sector.

Members of the Organization of Petroleum Exporting Countries put together a deal in Vienna last week to cut their collective output by 1.2 million barrels per day to ease the global glut and lift low prices. Oil prices reached their highest level in a year last week.

"The cost of a barrel of Brent crude rose by more than $2 to just over $54 a barrel, as the rally that greeted news of an agreement reached by producing nations in Vienna extended into a second day," the Guardian wrote.

According to President Hassan Rouhani, the amount of production cut and each OPEC member's share has been set, but the Islamic Republic of Iran, which had fallen behind on production due to sanctions, was exempted and will further increase output in the coming months.

As for inflation, according to CBI, the average goods and services Consumer Price Index for urban areas in the 12 months ending November 20, which marks the end of the Iranian calendar month of Aban, increased 8.6% compared with last year’s corresponding period.

The CBI put the inflation rate for the preceding month, which ended on October 21, at 8.7%. The overall CPI (using Iranian fiscal year to March 2012 as base year) stood at 249.5 in Aban, indicating a 0.6% growth compared with the previous month. The index registered a year-on-year increase of 9.1% compared with the similar month of last year.  

The CBI report came after the Statistical Center of Iran put Aban inflation at 7.5%.

Reducing inflation has been a primary goal of the government whose efforts are paying off. The last time was in 1990, when Iran was emerging from the carnage of the 1980-88 Iraq-imposed war.         

Urban consumer price index fell to 9.5% for the rolling year ending June 20 for the first time in 25 years. Inflation in the rural regions fell below the 10% mark.

Nobakht's remarks on the government's forecasts for economic growth and inflation came after President Rouhani submitted the budget bill for the 2017-18 fiscal to parliament on Sunday. 

The bill assumes larger revenues from taxes and petroleum sales, though the weaker exchange rate for the rial against the dollar will put next year's budget firmly below this year in dollar terms. 

The total amount of the budget is 3,711 trillion rials, which puts it 10.6% over the 3,354-trillion-rial budget passed into law for the current year.

The government assumes a stronger dollar and a higher price for crude oil in the coming year's budget bill. It sets greenback's exchange rate at 33,000 rials, up from last year's 29,970 rials, and still far lower than its exchange rate of 39,600 rial per dollar in Tehran's markets on Sunday. 

OPEC's third largest crude oil exporter is assuming an average oil price of $50 a barrel, up from the current $40.

With the $50 crude and 33,000-rial dollar parity rate, the administration expects 1,100 trillion rials in revenues from petroleum sales, which include the export of natural gas and condensates.

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