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World Bank Predicts Modest Growth for Iran
Economy, Domestic Economy

World Bank Predicts Modest Growth for Iran

Iran is estimated to achieve modest economic growth in 2014, according to a new report released by the World Bank.

The Global Economic Prospects Report, which is the World Bank’s flagship report on developing economies, estimates growth this year at 1.5 percent. As a result, the country looks set to emerge from two consecutive years of economic recession.

The Rouhani administration has shared the same view on the economy predicting a two percent growth rate for the year ending March 20, 2014. In its first quarter (spring) report, the Central Bank of Iran announced that the economy grew by 4.6 percent after it saw a 1.9 percent contraction in 2013-14 and a 6.8 percent contraction in 2012-13.

The World Bank report quotes “sanctions” as one of the main reasons for holding back growth in the third largest economy of the Middle East. However, it also argues that a limited lifting of sanctions in the first half of 2014 has led to expanded output, referring to the so-called Joint Plan of Action that was agreed upon by Iran and its negotiating parties at the nuclear table late last year. The agreement, although temporary, has slightly freed up Iran’s space of movement in foreign transactions and trade.

According to the report, Iran managed to increase its oil exports to an average of 2.7 million barrels a day in the first quarter of 2014. The figure is notably higher than the limit of 1 million barrels a day, which the west would want Iran to export under the Joint Plan of Action. Important reasons behind why Iran has been able to export this much include its successful marketing of oil with Asian partners such as China and India and political instability in other major oil-exporting countries, notably Iraq and Libya.

The report also predicts a gradual narrowing of Iran’s current account surplus from 0.2 percent this year to break-even in 2016. This estimate is based on the assumption that global oil prices remain around the $100-a-barrel benchmark. The World Bank refers positively to the government’s effort to reform subsidies but believes that “more needs to be done” as energy prices in Iran “remain among the lowest in the world.”  

Assuming that Iran manages to hold on to an export target of 2 million barrels a day,  the World Bank estimates growth of 2 percent in 2015 and 2.3 percent in 2016.

A recent report by the IMF also estimated growth of 1.5 percent for this year while this should rise to 2.2 percent in 2015.

Since assuming power last year, the Rouhani administration has so far been successful in pulling the economy out of the state of stagflation. Inflation has almost halved to slightly more than 20 percent from around 40 percent last September. President Hassan Rouhani has vowed to further curb inflation by year’s end (March 2014).

 

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