Iran Economy Shrinks 1.9% in Half-Year Fiscal Performance

EghtesadOnline: Iran’s gross domestic product contracted by 1.9% during the first half of the current fiscal year (March 20-Sept. 21) compared with the corresponding period of last year, the Statistical Center of Iran’s latest report shows.

News ID: ۷۵۱۶۳۳

05 December 2020

Economic growth, excluding oil, stood at -1.3%, the report added.

A sectoral breakdown of growth rates in the report shows that only “agriculture” and “industries and mining” sectors experienced growth with 1.7% and 2% respectively.

The “industries and mining” contracted 0.7% and “services” sector contracted 3.5%.

SCI also reported economic growth in the second quarter of the current year (June 21-Sept. 21): Iran’s GDP expanded 0.2% in Q2 while it shrank 0.2%, excluding oil sector. The “agriculture” sector saw a 2.7% expansion, “industries and mining” 4% while “industries and mining sector” expanded 4.2%. The “services” sector, however, contracted by 3% in Q2.

According to SCI, gross domestic product saw a contraction of 3.5% during the first quarter of the current fiscal year (March 20-June 20) compared with the corresponding period of last year. Economic growth, excluding oil, stood at -1.7% during the period.

A sectoral breakdown of growth rates shows only the agriculture sector experienced growth with a meager rate of 0.1%. The industries and services sectors contracted by 4.4% and 3.5% respectively.

Iran’s economy shrank by 6.9% in the last fiscal year (March 2019-20) which, excluding the oil sector, stood at -0.5%.

Only the agriculture sector experienced growth with 2.8% last year. The sectors of industries and services saw contractions of 14.7% and 0.7%, respectively.

The Central Bank of Iran has come up with different figures.

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

“A sectoral breakdown of growth rates shows the agriculture sector experienced 3.8% growth, while 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, noting that compared with sanctions-free countries that only had to deal with the coronavirus, Iran’s economic performance is promising.

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, and shrank by -0.6%, excluding oil, as the sectors of "industries and mines", and "services" contracted by 14.7% and 0.3% respectively.

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 the CBI chief, the oil sector shrank by a whopping 38.7% amid sanctions on Iran's oil sales.

The sectors of “agriculture” and "industries and mines" registered a respective growth of 8.8% and 2.3%, while 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 "industries and mines" and "agriculture" settling at -9.6% and -1.5% respectively and “services” registering a 0.02% growth.

The center put that year's growth, excluding oil, at -2.4%. It did not release any report on 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 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%.

IMF Forecast

The International Monetary Fund expects Iran's economy to return to growth in 2021.

In its latest World Economic Outlook report, IMF forecasts 3.2% growth for Iran's GDP next year.

Projection for the current year's growth by the international organization, headquartered in Washington, D.C., is at -5%.

According to IMF, the Iranian GDP contracted by 6.5% in 2019.

The previous World Economic Outlook reported that the real GDP registered a 3.1% growth next year after a contraction of -6% in 2020. It said the Iranian economy shrank by -7.6 in 2019.

"The Covid-19 pandemic is inflicting high and rising human costs worldwide. Protecting lives and allowing healthcare systems to cope have required isolation, lockdowns and widespread closures to slow the spread of the virus. The health crisis is, therefore, having a severe impact on economic activity. As a result of the pandemic, the global economy is projected to contract sharply by –3% in 2020, much worse than during the 2008–09 financial crisis. In a baseline scenario, which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound, the global economy is projected to grow by 5.8% in 2021 as economic activity normalizes with the help of policy support," reads the previous report.

"There is extreme uncertainty around the global growth forecast. The economic fallout depends on factors that interact in ways that are hard to predict, including the pathway of the pandemic, the intensity and efficacy of containment efforts, the extent of supply disruptions, the repercussions of the dramatic tightening in global financial market conditions, shifts in spending patterns, behavioral changes [such as people avoiding shopping malls and public transportation], confidence-building efforts and volatile commodity prices. Many countries face a multi-layered crisis comprising a health shock, domestic economic disruptions, plummeting external demand, capital flow reversals and a collapse in commodity prices. Risks of a worse outcome predominate."

World Bank Forecast

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, the 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 the report, 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]," it said.

The latest World Bank report, noted 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 goes on to read.