Construction GFCF Grows by 3.6%

EghtesadOnline: Gross fixed capital formation (GFCF) registered a 0.6% decline in the first quarter of the current Iranian year (March 20-June 20), based on the constant prices of the year ending March 2012.

News ID: ۷۵۱۰۵۴

21 September 2020

Gross fixed capital formation includes two sectors of “construction” and “machinery”, registered a 3.6% growth and a 9.9% contraction, respectively.

According to a report by the Central Bank of Iran, the country’s GFCF at current prices increased by 390 trillion rials ($1.44 billion) in the current fiscal year’s first quarter compared with the same period of last year to reach 1,362 trillion rials ($5.05 billion).

Compared with the fourth quarter of the last fiscal year (Dec. 22, 2019-March 19), the gross fixed capital formation registers a decrease of 203 trillion rials ($753.24 million).

Capital formation describes the net capital accumulation during an accounting period for a particular country. The term refers to additions of capital goods, such as equipment, tools, transportation assets and electricity.

Countries need capital goods to replace the older ones that are used to produce goods and services. If a country cannot replace capital goods as they reach the end of their useful lives, production declines. Generally, the higher the capital formation of an economy, the faster an economy can grow its aggregate income.

Preliminary estimates say Iran’s gross domestic product, using constant prices of the year ending March 2012, reached 1,459 trillion rials ($5.41 billion) in Q1 from 1,501 trillion rials ($5.56 billion) in Q1 of last year, registering a 2.8% year-on-year decline.

“Oil”, “social, personal and home services”, “commerce, restaurant and hoteliering” and “transportation, warehousing and communications” were the main laggards of economic growth in Q1, registering 2.3%, 0.5%, 0.4% and 0.3% contractions, respectively.

When constant prices are used, the agriculture sector generated 115 trillion rials ($426.71 million) during the first three months of the current year, posting a 3.7% growth YOY. Production by agronomy and horticulture sub-sectors increased by 4.4% and 6.3%, and the output of main livestock products grew by 2.9%.

Oil sector’s added value hit 177 trillion rials ($656.77 million), indicating a 16% decline YOY. The decline in oil economic growth is chiefly to blame on the decline in the production and exports of crude oil and gas condensates.

Industrial and mining sector posted a growth of 2.5%, generating 382 trillion rials ($1.41 billion); as “industry” registered a 1.3% growth, “mining” 2.1%, “construction” 3.9% and “electricity, natural gas and water” posted 3.8% growth.

In the construction sector, private sector investment in urban areas increased by 4.2% when constant prices of the year ending March 2012 are taken into account.

Services sector contracted by 1.6%, creating 833 trillion rials ($3.09 billion) in the first quarter of the current year.

The private final consumption expenditures declined by 4% to stand at 623 trillion rials ($2.31 billion) but final consumption expenditures by government increased by 1.2% to hover around 137 trillion rials ($508.34 million) in the first quarter.

Using constant prices, exports and imports decreased by 30% and 44.3% over the three-month period, the central regulator said.

"Iran’s economy is recovering from the pandemic shock. When compared with sanctions-free countries, which only had to deal with the coronavirus, Iran’s economic performance is promising," CBI Governor Abdolnasser Hemmati recently wrote in an Instagram post.

The CBI report 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%, that of industrial sector at -4.4% and services at -3.5%.

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

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

According to the center, GDP shrank by -0.6%, excluding oil production.

The sectors of "industries and mines" and ""services" saw a respective contraction 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 figure at 1.1%.

According to Hemmati, the oil sector shrank by 38.7% amid sanctions on Iran's oil sales.

The sectors of agriculture and "industries and mine" saw a respective growth 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 production of the two groups of "industry" and "agriculture" at -9.6% and -1.5% respectively and services at 0.02%. The center put that year's growth, excluding oil production, at -2.4%.

The CBI did not release any report for the fiscal 2018-19 economic 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 much lower and near 8.3%.