Iran’s economy recorded a mild setback in spring 2025, as GDP dipped 0.4% and private final consumption—the largest driver of national output—fell by 1.1%. New data from the Statistical Center of Iran indicate that household and nonprofit spending continued to soften for a fourth consecutive quarter, reflecting persistent pressure on domestic demand. With private consumption accounting for 42% of GDP, even modest declines carry meaningful implications for growth momentum and household welfare.
Persistent inflation, elevated economic and political uncertainty, and waning confidence in income stability have pushed families to reduce discretionary spending. Households appear increasingly cautious, postponing non-essential purchases and focusing on essential goods. The strong consumption growth recorded in the Iranian calendar year 1400 (March 2021 to March 2022) has steadily weakened, turning negative from mid-1403 onward.
Consumption Trends
Per-capita private consumption has also stagnated over the long term. Adjusted for inflation, it has hovered around 48 million tomans (constant 1400 prices) from 1390 to 1403, showing virtually no real growth despite changes in population, nominal wages and consumption patterns. This long-run stagnation highlights structural challenges, including the erosion of purchasing power, limited job security and wage growth that fails to keep pace with inflation.
Although the economy is not experiencing an abrupt downturn, the persistence of weak domestic demand raises policy questions. Private consumption remains the main expenditure-side driver of GDP, and its contraction for four consecutive quarters suggests that broader economic activity may struggle to maintain momentum in the months ahead—even if oil revenues or government spending provide partial support.
To stabilize household demand, economic policy will need to address both near-term pressures and deeper structural constraints. In the short run, controlling inflation, adjusting wages in line with the cost of living, and providing targeted support to vulnerable and middle-income households could help restore purchasing power. Expanded access to consumer credit, especially for durable goods, may offer an additional boost. Selective tax relief could also ease pressure on household budgets.
Yet restoring consumer confidence is just as essential as improving purchasing power. When households doubt the reliability of future income, they restrict spending even when financial resources are available. More predictable policymaking, reduced volatility and clearer economic signals will be critical to rebuilding trust. Over the medium term, sustained investment, job creation and real wage growth will be needed to revive private consumption and support a more stable GDP trajectory.
The spring data ultimately depict an economy adjusting to subdued domestic demand rather than entering a sharp contraction. Still, the message is clear: strengthening private consumption will be central to shaping Iran’s growth path in the year ahead.
