Iran GDP Down 4.9% in 2018-19

EghtesadOnline: Iran's gross domestic product shrank by 4.9% in the fiscal 2018-19 compared to the year before, the Statistical Center of Iran's latest report shows.

News ID: ۷۴۷۵۹۰

18 June 2019

The overall GDP figure stood at 7,130 trillion rials ($52.42 billion at current market exchange rates) for the year under review.

Economic growth, excluding oil production, stood at -2.4%, the report added.

The production of the two groups of "industry" and "agriculture" contracted by 9.6% and 1.5% respectively, according to Financial Tribune.

The "services" group posted a meager 0.02% growth.

SCI's previous reading of Iran's economic growth showed that GDP saw a contraction of -3.8 during the first three quarters of the last fiscal year (March 21-Dec. 21, 2018) compared with the corresponding period of the year before.

Economic growth, excluding oil production, stood at -1.9% during the period.

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 CBI and 0.9% by SCI.

CBI has put 2016-17 growth at 12.5% while SCI says it was much lower and near 8.3%. CBI has ceased to release reports on Iran's growth rates.

Impact of US Sanctions

The weak performance of the economy should be traced to last year's enforcement of sanctions by Washington that described them as "the toughest ever" after US President Donald Trump unilaterally walked out of the nuclear deal Iran had signed with world powers, including the US, in 2015.

The first round of renewed US sanctions reimposed on August 7 prohibits Iran's purchase of US dollars and precious metals, part of a larger move that attempts to cut the country off from the international financial system.

A second tranche of sanctions on Iran's oil and gas sector took effect on Nov. 4.

Oil, incidentally Iran's main source of revenue, has taken the brunt of sanctions.

World Bank, IMF Estimates, Forecasts

The World Bank recently downgraded its estimates and forecasts on Iran's economic growth.

In its latest Global Economic Prospects report published in June, it forecasts Iran's GDP to contract 4.5% in 2019 after having experienced an estimated -1.9% growth in 2018.

The above figures indicate a -0.9 and -0.4 percentage point difference compared with the World Bank's January report respectively.

Forecasts for 2020 and 2021 are at 0.9% and 1%, indicating a -0.2 and 0.1 percentage point difference compared to World Bank’s January report respectively.

"In Iran, the impact of US sanctions is projected to peak this year, with growth resuming in 2020," the report reads, adding that the sanctions are inhibiting investment.

According to the report, Iran’s inflation (year-on-year) has risen sharply from about 10% in mid-2018 to about 52% in April 2019, contributed by a depreciation of the rial in the parallel market of more than twofold compared to levels prior to the announcement of US sanctions in April 2018.

"Growth in Iran is expected to resume in 2020-21, albeit at weak rates, as the impact of US sanctions tapers and inflation stabilizes," the report went on to say, noting that further amplification of US-Iran tensions would pose risks for the region’s economies other than Iran.

The International Monetary Fund has forecast a deepening recession for Iran's economy this year, projecting a real GDP growth of -6% in 2019 after a contraction of 3.9% the year before.

In its newly released "World Economic Outlook" report, the IMF sees growth resume at a meager rate of 0.2% in 2020 before increasing to 1.1% in 2024.

The IMF report came a few days after the World Bank downgraded Iran's economic growth estimates and forecasts in a new report that put the Islamic Republic's real GDP growth for 2018 at -1.6%.