Majlis Think Tank Explores Lackluster Economy

EghtesadOnline: In its latest report mapping out the economic performance of the country during the previous fiscal year that ended in March, the Majlis Research Center has identified three major challenges influencing the real economy.

News ID: ۷۶۹۳۸۷

13 September 2016

The report digs into multifaceted factors that have hobbled economic growth during a time marked by low oil prices and slow global economic activity.

Alongside the structural and perennial problems of the economy, the think tank believes that three disruptions were to blame in particular for the economy's grim status in the twelve months to March 19.

"The challenging factors include lackluster demand, alarming conditions of the  banking system complicated further by high interest rates plus the steep decline in oil revenue," the report says.

The most important positive economic and political event of last year, says the report, was the landmark nuclear deal struck between Iran and the six world powers and its gradual implementation. "The agreement has the potential to help redress some of the conundrums facing the economy."

Dampened Demand

The powerful think tank notes that in a sign of weakening demand in various sectors of the economy, private and public consumption as well as investment began to plummet from 2007 onward. This clearly shows that Iran's economic woes emerged well before western sanctions were tightened in 2011when  Mhamoud Ahmadinejad was at the helm.

Furthermore, since 2007, growth in private sector consumption and the real income of households began to take a hit; the real median income of urban households in 2014 was lower than what it was in 2002 and the real median income of rural households in the same year was less than what it was in 2001.

On the other hand, in 2015 Iran's economy grappled with low exports which in turn hurt economic growth. The MRC names "the persistence of sanctions until late January 2016 and a lack of visible change during the subsequent two months coupled with the sluggish global growth, especially in emerging economies, the slowing of China's growth (as one of Iran's important export destinations), instability in neighboring Iraq, falling commodity prices, the plunge in global crude prices and the consequent fall in petrochemical prices" as factors that contributed to a fall in Iranian exports.

Crises in the Banking Sector

The banking industry is operating under critical circumstances and is saddled by a "pile of sour assets, non-performing loans, ineffective management and weak corporate governance which has made it harder for the banks to play their principal role of financing the production sector," says the MRC.

"The result was a rise in interest rates in the past few years, even though inflation had declined."

This notable discrepancy between interest rates and the inflation rate has been a factor that has exacerbated weak demand.

Drop in Oil Prices

The declining trend in oil prices that began from late 2014, continued into 2015, taking a toll on the government budget, reports the MRC. "As a result of this situation, government spending declined that further hurt demand and stripped the government from its ability to ease monetary policy."

"In 2015, the country's trade balance was positive for the first time, reaching $920 million," the research institute said. However it adds that the tangible drop in the value of imports in comparison with the previous year as a result of the looming recession and the global drop in the price of petroleum products were among the reasons behind the positive trade balance."

Conclusion

The MRC warns that several issues have added to the concerns of policymakers which cannot and should not be ignored: financing businesses, accumulation of debt, lack of full engagement with the global economy and the bulging informal economy that includes the army of unlicensed credit and financial institutions, reports Financial Tribune.

The think tank points to data released by the Iran's Statistical Center which shows that in 2015 GDP growth was 1% and the agriculture, oil, industries, housing and services sectors registered 5.4%, 3.6%, -0.3%, -16.4%  and 0.2% growth respectively.

"But giving statistics without referencing the relevant data for previous years could prove to be rather confusing for policymakers, pundits and civilians alike," says the MRC.

"What is more, the CBI has not released its own numbers so far, but tentative reports suggest economic growth in the last year was negative."