Iran's Q1 GDP Shrank by 2.8%

EghtesadOnline: Iran's gross domestic product contracted by 2.8% during the first quarter of the current fiscal year (March 20-June 20) compared to the corresponding period of last year, Governor of the Central Bank of Iran Abdolnasser Hemmati said.

News ID: ۷۵۱۰۰۸

16 September 2020

“A sectoral breakdown of growth rates shows the agriculture sector experienced a 3.8% growth, and the industries and mining sector expanded by 2.5%, but the services sector contracted by 1.6%, which was predictable following the outbreak of coronavirus and restrictions imposed to prevent the spread of the disease,” he wrote in an Instagram post.

Hemmati also put Q1 economic growth, excluding oil production, at -0.6%.

“Iran’s economy is recovering from the pandemic shock. Compared to sanctions-free countries, which only had to deal with the coronavirus, Iran’s economic performance is promising,” he said.

CBI-SCI Discrepancies

Hemmati’s comments came after the Statistical Center of Iran put Q1 growth at -3.5%.

Economic growth, excluding oil, stood at -1.7%, according to SCI.

The center put growth in agriculture sector at 0.1%, industries sector at -4.4% and services at -3.5%.

Discrepancies were also seen in the reports of SCI and CBI on Iran's economic growth in the last fiscal year (March 2019-20).

According to SCI, the Iranian economy experienced a 7% contraction in fiscal 2019-20.

According to the center, the GDP shrank by -0.6% without taking oil production into account.

The sectors of "industries and mines", and ""services" saw respective contractions of 14.7% and 0.3%.

This is while the CBI governor put last fiscal year's growth at -6.5%. Excluding the oil sector, he put the growth at 1.1%.

According to him the oil sector shrank by a whopping 38.7% amid sanctions on Iran's oil sales.

The sectors of agriculture and "industries and mine" saw respective growths of 8.8% and 2.3% as services contracted by 0.2%, he added.

Iran's gross domestic product shrank by 4.9% in the fiscal 2018-19 compared to the year before, according to SCI, with the growth of two groups of "industry" and "agriculture" at -9.6% and -1.5% respectively and that of services at 0.02%. The center put that year's growth without taking oil production into account at -2.4%.

The CBI did not release any report for the fiscal 2018-19 growth rate.

Iran’s economy emerged from recession in the fiscal 2014-15 with a 3% growth after two years of recession when the economy contracted by 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.

The CBI has put 2016-17 growth at 12.5% while SCI says it was near 8.3%.

World Bank Forecasts

The World Bank expects Iran's economy to bounce back to growth in 2021 with 2.1% in GDP expansion after having experienced an estimated 5.3% contraction this year.

In its June edition of Global Economic Prospects report, World Bank revised down its forecast for Iran's growth in 2020. The previous such report had estimated 0% growth in 2020.

However, the forecast for next year has been revised up, as the previous report had forecast 1% growth in 2021.

According to World Bank, Iran experienced respective growth rates of -8.2%, -4.7% and 3.8% in 2019, 2018 and 2017.

"Iran’s GDP, which had already fallen in each of the previous two years, is expected to shrink again in 2020, by 5.3%, partly reflecting the effects of the large-scale Covid-19 outbreak on domestic consumption and the services sectors [e.g., tourism]," reads the latest report, adding that in many oil exporting countries, growth will be significantly constrained by renewed policy cuts in oil production.

"US-Iran tensions have not eased appreciably even as both countries attempt to cope with the effects of the pandemic," it went on to read.

Economic Challenges

According to the Ministry of Economic Affairs and Finance, eight main challenges face Iran’s economy in the current fiscal year that started on March 20.

As reported by Fars News Agency, arguably the most biting of these challenges is the escalation of US sanctions and depletion of Iran’s foreign exchange reserves combined with economic losses resulting from coronavirus outbreak and disruptions it has caused for businesses that would trim tax revenues.

The continuation of the decline in oil, petroleum products and petrochemical prices due to the global recession is another challenge.

The Economy Ministry also referred to the challenge of deepening recession in services sector caused by the coronavirus pandemic.

The sector employs nearly half of the Iranian employed population. The services sector consists of wholesale and retail trade; restaurants and hotels; transport, storage and communications; financing, insurance, real estate and business services; as well as community, social, education, health and personal services.

Other challenges facing the economy according to the Economy Ministry include: Withering global demand for minerals and decrease in the prices of metals; decline in consumption due to people’s shrinking purchasing power; government’s rising expenses due to the impacts of coronavirus spread; and widening budget deficit.