Iran H1 Economic Growth at 4.5% (Mar-Sep 2017)

Iran’s economy grew by 4.5% during the first half of the current fiscal year (March 21-Sept. 22) compared with last year’s corresponding period, the latest report released by the Central Bank of Iran announced.

The report shows Iran’s gross domestic product in H1 1396 stood at 3.54 quadrillion rials (based on fiscal year 1390 prices), up from 3.38 quadrillion rials in H1 1395.

Each dollar was exchanged for 44,420 rials in Tehran’s foreign exchange market on Wednesday.

A sectoral breakdown of growth indicates that oil production expanded the highest with a rate of 5.8%. The sectors of “industries and mines”, “agriculture” and “services” grew by 4.5%, 4.2% and 3.8% respectively.

Notably, the growth in oil production is considerably lower than in the corresponding period of last year (5.8% compared to 61.9%), indicating that spare capacity in the oil sector as a result of years of sanctions has been utilized and crude output has reached pre-sanction levels.

International sanctions against Iran’s economy over the country’s nuclear energy program began to roll back as of January 2016 as part of a deal Tehran signed with world powers a year earlier. In exchange, Iran agreed to wind down the scope of its nuclear activities.

The nuclear deal, otherwise known as Joint Comprehensive Plan of Action, made it possible for Iran to significantly boost oil production, which had fallen drastically after the sanctions were tightened in 2012. Government data show Iran’s crude oil production reached 3.8 million barrels per day by the end of the last fiscal from around 3 million bpd in the previous year. Under the sanctions, crude output fell to 2.5 million barrels daily and exports were limited to barely 1 million bpd to a few customers in Asia.

Iran is allowed to pump an average of 3.8 million bpd by March 2018 under an OPEC deal aimed at eroding global inventories and lifting sagging crude prices. On average, Iran exported 400,000 barrels daily, or 64 million liters per day, of oil byproducts to buyers in the Middle and Far East in the fiscal 2016-17, up from around 220,000 bpd in the previous fiscal year. Outbound shipments of oil byproducts are expected to rise by 200,000 barrels a day to 600,000 barrels daily in the current fiscal year, according to a report by the National Iranian Oil Products Distribution Company.

“Growth has begun to broaden to the non-oil sector,” read a statement by Catriona Purfield, who led an International Monetary Fund team to Iran earlier this month.

   Other Sectors

Also noteworthy in the latest CBI report is the emergence of the construction sector (a subcategory of the “industries and mines” group) from -14.6% growth in H1 1395 to +0.6% in the first half of the current year. Moreover, the subcategory of mining saw 0.4% growth from last year’s -6%.

The CBI report came after the Statistical Center of Iran put H1 1396 growth at 5.6%, including growth in the oil sector and 6% excluding it.

According to SCI, agricultural production expanded by 0.9% as the industrial sector (comprised of crude oil, natural gas and other mineral extractions, industrial production, energy and construction) grew by 4.4%. The services sector saw the highest growth of 7.2% during the first half of the current year, the earlier report suggested.

Iran’s economy emerged from recession in the fiscal 2014-15 with a 3% growth after two years of recession when the economy contracted 5.8% and 1.9% back to back, according to the Central Bank of Iran.

Growth in 2015-16 has been put at -1.6% by the Central Bank of Iran and 0.9% by SCI.

SCI and CBI both publish periodic statistics on the national economy, but their data often differ, as they use different methods and formats.

CBI has put 2016-17 growth at 12.5% while the SCI says it was much lower and near 8.3%.

  Projections by World Bodies

IMF expects Iran’s real GDP growth to reach 4.2% in 2017-18, projecting it to be sustained or even rise toward 4.5% over the medium-term, if financial sector reforms take hold.

“Notwithstanding the recovery, the economy faces near-term challenges. Rising financial vulnerabilities and external uncertainty argue for the urgent implementation of the planned financial sector reform. A coordinated reform package that also sees the government take additional fiscal measures to reduce debt, unify the exchange rate and transition to a market-based monetary policy framework would send a strong signal of the authorities’ commitment to stability,” an IMF report reads.

The World Bank, in its latest “Iran’s Economic Outlook” report, sees stronger growth for Iran in 2018-19 “as investment growth turns positive and accelerates along with more political and economic stability”. It estimates a 3.6% GDP growth at constant market prices and 3.5% at constant factor prices for the Iranian economy in 2017.

The estimates for 2018 and 2019 are at 4% and 4.3% at constant market prices and 3.9% and 4.1% at constant factor prices respectively.

And the United Nations, in its latest World Economic Situation Prospects, has forecast a 5.3% economic growth for Iran in 2017, noting that the growth is projected to settle at 5.1% and 5% over the next two following years respectively.

“The economic situation in the Islamic Republic of Iran has improved visibly in recent years. In 2017, GDP growth remained relatively robust at 5.3%, after surging by an estimated 12.5% in 2016 due to a strong expansion of oil production and exports. GDP growth is expected to remain above 5% in 2018 and 2019, supported by easing monetary conditions and an improving external sector,” the UN report reads, adding that future economic growth in Iran depends on attraction of foreign direct investment.

“The moderately favorable outlook is contingent on the capacity to attract foreign investments and is subject to significant geopolitical risks and uncertainties.”