Economy, Business And Markets

Market Recovery Pending Sanctions Removal

Market Recovery Pending Sanctions RemovalMarket Recovery Pending Sanctions Removal

Two months after Iran reached a nuclear deal that will open its markets to the world, officials are warning of economic stagnation as consumers hold off on making purchases until western sanctions imposed on the country against its nuclear energy program are lifted as part of the agreement.

Many economists, though, warn that this psychological trend could fail to meet the expectations as the dynamics of the market are determined by multiple factors at play, including but not limited to government policy and the law of supply and demand.

Nonetheless, for now, from cars to fridges and televisions, shoppers are excited at the prospect of more choice and competition that should force Iranian manufacturers to lower prices and improve quality, Reuters reported.

The deal with world powers in July will likely see banking and other sanctions lifted in 2016, making it easier for foreigners to partner with Iranian firms or export to Iran.

Since the deal, Iranian manufacturers have seen growth in sales prices fall far behind inflation, central bank data show, while officials and analysts describe a slowdown in consumer spending and warehouses filling with unsold goods.

“The subsequent rush of western businesses to enter the Iranian market informed Iranian consumers that soon there will be alternative supplies of consumer goods priced more competitively and with a substantially higher quality and post-sale services,” said Mehrdad Emadi, an economist at the Betamatrix consultancy in London.

That competition is likely to lift Iran’s economy in the long term, but consumer anticipation of lower prices and foreign goods is a challenge to manufacturers used to a captive market.

“Unfortunately some people thought prices would fall suddenly after the nuclear deal, and because of this the market is facing a recession,” First Vice President Es’haq Jahangiri was quoted as saying by state news agency IRNA this month.

Mehdi Pourghazi, head of the industrial committee of Tehran Chamber of Commerce, Industries, Mines and Agriculture, predicted growth could fall to zero, compared to 3% last year, according to ISNA.

Carmakers, the biggest non-oil sector of the economy, are facing a particularly sharp slowdown.

New car registrations for the first five months of the Iranian year, which starts on March 21, were down 15% from the year before, traffic police chief Taqi Mehri was quoted as saying by ISNA this month.

Meanwhile, the country’s giant carmakers Iran Khodro and Saipa are in talks with foreign carmakers to get access to more up-to-date models after sanctions. Peugeot sent representatives to Tehran this week alongside more than 100 French firms interested in entering the Iranian market.

Iran’s manufacturing Producer Price Index rose just 1% year-on-year in the Iranian month to August 22, compared to 11.2% in the previous year and far below inflation rates of between 14 and 17%.

PPI growth for vehicle manufacturing fell to 3.3% from 20.7% over the same period, data from the Central Bank of Iran showed.

Other sectors of the economy are also suffering.

“Home appliances sales have fallen 5 to 6% after the nuclear deal,” Minister of Industries, Mining and Trade Mohammad Reza Nematzadeh was quoted as saying by IRIB in August.

A Tehran-based seller of appliances such as fridges, washing machines and vacuum cleaners also reported a slowdown.

While Iranian consumers look forward to the wider choice they think a freer market would bring, most policymakers want to protect local manufacturers and shore up economic growth.

President Hassan Rouhani has told foreign companies not to treat Iran solely as an export market after sanctions.

“If foreign companies or countries think they can take control of a market of 80 million people, they are mistaken, and we must not allow it,” he said.