Covid-19 Sinks Business Activities to Record Low

EghtesadOnline: The Purchasing Managers’ Index, known by its Farsi acronym Shamekh, for Iran’s overall economy nosedived to its lowest level in the first month of the current fiscal year (March 20-April 19) in another sign that the coronavirus pandemic is causing serious economic damage to the country.

News ID: ۷۵۰۰۲۱

12 May 2020

The announcement was made by the Statistics and Economic Analysis Center of the Iran Chamber of Commerce, Industries, Mines and Agriculture.

The overall PMI for the economy declined from 47.62 in the month ending Feb. 19 to 31.39 in the month ending March 19 to 28.68 in the month ending April 19.

The center says the numbers point to an economic contraction of 8.6% or 2.71 points from the 12th month of last Iranian year (Feb. 20-March 19) to the first month of the current fiscal year (March 20-April 19).

The headline PMI is a number from 0 to 100, such that over 50 shows an expansion of the economy when compared with the previous month. A PMI reading under 50 indicates contraction and a reading of 50 implies no change.

PMI is an index of the prevailing direction of economic trends, aiming to provide information about business conditions to company directors, analysts and purchasing managers.

According to the report, the “business output” sub-index decreased from 48.77 in the 11th month of last Iranian year (Jan. 21-Feb. 19) to 28.10 in the 12th month (Feb. 20-March 19) to 21.67 in the first month of the current year.

The "new orders" sub-index dropped from 46.33 in the 11th month to 28.60 in the 12th month of the last year to 21.45 in the first month of the current year.

The "supplier deliveries" sub-index, which measures how fast deliveries are made, decreased from 50.35 in the month ending Feb. 19 to 36.51 in the month ending March 19 to 33.49 in the month ending April 19.

The "raw materials inventory" sub-index fell from 37.76 in the month ending Feb. 19 to 32.23 in the month ending March 19 to 25.57 in the month ending April 19.

The PMI reading of "employment" sub-index slid from 51.03 in the 11th month to 35.42 in the 12th month of last year, but improved to 46.22 in the first month of the current Iranian year.

To calculate PMI, seven secondary criteria were also surveyed by the center, namely raw material purchase prices, warehouse inventory, exports, product price, fuel consumption, sales and production expectations.

The "raw material purchase prices" sub-index decreased from 84.05 in the month ending Feb. 19 to 61.98 in the month ending March 19, but climbed to 70.69 in the month ending April 19.

The "warehouse inventory" sub-index plunged from 42.55 in the month ending Feb. 19 to 36.30 in the month ending March 19 but improved to 37.64 in the month ending April 19.

The "exports "sub-index dropped from 45.29 in the 11th month to 30.30 in the 12th month of the last year to 28.72 in the first month of the current year.

The "prices of manufactured products or services" sub-index decreased from 63.13 in the 11th month to 44.98 in the 12th month, but increased to 48.65 in the month ending April 19.

The "fuel consumption" sub-index tumbled from 66.92 in the month ending Feb. 19 to 35.37 in the month ending March 19 to 33.83 in the month ending April 19.

The "sales" sub-index declined from 47.35 in the 11th month to 29.17 in the month ending March 19 to 17.17 in the month leading to April 19.

The "business output forecasts" sub-index slid from 50.49 in the month leading to Feb. 19 to 23.82 in the month ending March 19, but jumped to 56.42 in the month ending April 19.

Coronavirus, Sanctions and More

Estimates show 15% of Iran’s economy will be affected by the coronavirus outbreak, Economy Minister Farhad Dejpasand has said, though the exact economic cost of the new coronavirus outbreak in Iran has yet to be determined.

What's evident is that the economy, already battered by years of punishing sanctions, is facing one of its toughest years in history.

“The country is bound to face a serious inflationary recession in the coming months given the falling oil prices and the outbreak of coronavirus,” says Parviz Javeed, a member of Iranian Economists Association.

“Due to sanctions and complications associated with the country’s blacklisting by FATF, importation, particularly that of intermediate goods factories need, will become more difficult. Nearly 60-70% of Iranian factories rely on imported raw materials. In case these raw materials are not supplied at promptly and adequately, the factories will be forced to reduce their production capacity and lay off workers,” he told Persian-language daily Shahrvand.

The Financial Action Task Force put Iran on its blacklist on Feb 21 after Tehran failed to comply with its anti-terrorism funding norms. FATF had asked Iran to pass four bills as part of the “Action Plan” to escape the watchdog’s blacklist.

Tehran managed to approve and enact amendments to counter-terrorist financing and anti-money laundering rules. Two remaining bills, namely Palermo (convention against transnational organized crime) and terrorist financing conventions, failed to get the approval of top legislative bodies.

As per the government plan dubbed Smart Distancing Initiative, low-risk businesses resumed activities starting April 11 in all provinces, except Tehran, that can follow suit on April 18. Government offices will be open from 7 a.m. to 2 p.m. The scheme allows one-third of employees in each workplace to undertake remote work.