Recession Impacts Industrial Demand

EghtesadOnline: The new report on Purchasing Managers’ Index for Iranian industries shows the benchmark has distanced from the threshold, despite the uncertainty in business climate as nuclear talks in Vienna, Austria, prolong.

News ID: ۷۸۷۷۴۹

09 March 2022

The Purchasing Managers’ Index for Iranian industries in the current fiscal year’s 11th month (Jan. 21-Feb. 19) settled at 51.5 from 50.31 in the preceding month (Dec. 22-Jan. 20), indicating a 2.37% rise.

According to the Statistics and Economic Analysis Center of Iran Chamber of Commerce, Industries, Mines and Agriculture, the sponsor and coordinator of the report, most industries witnessed a decline in orders during the period under survey, as economic actors face a recession while awaiting the outcome of nuclear negotiations.

Constant fluctuations in the value of the national currency against foreign currencies severely disrupt businesses and have a negative impact on their activities and plans. Most of the industries surveyed said they were still facing shortages of raw materials and recession, the new PMI report reads.

Tehran and Washington have held more than 11 months of indirect talks in Vienna on reviving the pact, which is expected to curb the scope of Iran's nuclear program in return for the lifting of economic sanctions.

"It is expected that general issues between us and the agency will be reviewed regarding how to pursue various matters in the future. God willing, there will be an understanding," spokesperson for Iran's Atomic Energy Organization, Behrouz Kamlavandi, told state television.

International Atomic Energy Agency chief, Rafael Grossi, who arrived in Tehran late Friday, has raised hopes for progress on one of the last thorny issues blocking a deal to revive the nuclear pact that the former US administration abandoned in 2018 and reimposed far-reaching sanctions on Iran.

Since 2019, Tehran has gone back on its commitments under the nuclear deal known as the Joint Comprehensive Plan of Action in response to the US walkout.

All parties involved in the talks aimed at bringing Tehran and Washington back into compliance with the nuclear pact have said they were close to reaching an agreement.

Iranian officials told Reuters that Tehran and the IAEA "could agree a roadmap to close the outstanding issues", which will potentially clear the way for a deal, Reuters reported.

The United States and its allies are “getting closer” to a nuclear deal with Iran, White House Press Secretary Jen Psaki said on Monday, adding that “important components” still need to be decided.

Locally known by its Farsi acronym Shamekh, PMI is an indicator of economic health for manufacturing and services sectors. It provides information about current business conditions to companies’ decision-makers, analysts and purchasing managers.

The headline PMI is a number from 0 to 100. A PMI above 50 represents an expansion compared with the previous month. A PMI reading under 50 represents a contraction and a reading of 50 indicates no change. The further away from 50, the greater the level of change.

PMI is based on a monthly survey sent to senior executives of more than 400 companies. It is based on five major survey areas: new orders (30%), raw material inventory (10%), production (25%), supplier deliveries (15%) and employment (20%).

The survey poses 12 questions about business conditions and any changes, whether it is improving, no changes or deteriorating.

"Others" posted the highest PMI with a reading of 71.5 during the month under review while "Rubber and Plastic" registered the lowest PMI of 40.

Five Main Sub-Indices

The "production" sub-index for Iran’s industrial sector decreased from 58.84 in the current fiscal year’s ninth month (Nov. 22-Dec. 21) to 50.54 in the 10th month (Dec. 21-Jan. 20) and grew to 50.57 in the 11th month.

Industries classified as "others" recorded the highest PMI of the production sector (80) while "clothing and leather" registered the lowest PMI with a reading of 37.5.

The "new orders" sub-index declined from 53.33 in the month ending Dec. 21 to 44.9 in the month ending Jan. 20, but increased to 48.83 in the month ending Feb. 19, with the top-performing industries being "others" (80) and the worst being "non-metallic mineral industries" (25).

The "supplier deliveries" sub-index, which measures how fast deliveries are made, decreased from 65.38 in the month ending Dec. 21 to 57.5 in the month ending Jan. 20, but grew to 59.84 in the month ending Feb. 19.

The highest supplier deliveries PMI was posted by "others" with a reading of 70 and the lowest was recorded for "rubber and plastic" with a reading of 25.

The "raw material inventory" sub-index decreased from 52.6 in the month ending Dec. 21 to 46.21 in the month ending Jan. 20, but increased to 48.86 in the month ending Feb. 19.

"Wood, paper and furniture" posted the highest PMI with 56.3 while "clothing and leather" registered the lowest PMI reading of 25 among all groups.

The PMI reading of "employment" sub-index declined but remained above the threshold. It increased from 53.78 in the month ending Dec. 21 to 54.79 in the month ending Jan. 20, but declined to 51.75 in the month ending Feb. 19.

Industries classified as "others" posted the highest PMI reading (60) whereas "rubber and plastic" posted the lowest PMI with 41.7.

Seven Secondary Criteria

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 80.25 in the month ending Dec. 21 to 75.91 in the month ending Jan. 20 and decreased to 73.48 in the month ending Feb. 19.

All 12 groups registered PMI readings of higher than 50 for "raw material purchase price" sub-index in the 11th fiscal month. The highest PMI was recorded for "petroleum and gas products industries” and "rubber and plastic" each with a reading of 91.7 and the lowest for industries categorized as "textile industries" and "wood, paper and furniture" with 62.5.

The "warehouse inventory" sub-index increased from 52.82 in the month ending Dec. 21 to 53.14 in the month ending Jan. 20 and grew to 53.8 in the month ending Feb. 19.

The lowest PMI reading for "warehouse inventory" sub-index was recorded for "vehicles and related components" with 47.8 and the highest was registered for "others" with 70.

The "exports" sub-index increased from 45.37 in the month ending Dec. 21 to 49.43 in the month ending Jan. 20 and grew to 51.86 in the month ending Feb. 19.

PMI reading of "exports" sub-index was the highest for "wood, paper and furniture" (59.4) and lowest for industries categorized as "petroleum and gas products industries" (36.1).

The "prices of manufactured products" sub-index decreased from 64.51 in the month ending Dec. 21 to 60.99 in the month ending Jan. 20, but declined to 49.53 in the month ending Feb. 19.

"Others" recorded the highest PMI of 70 during the 11th month of the Iranian year while industries classified as "wood, paper and furniture" posted the lowest PMI reading of 34.4.

The "fuel consumption" sub-index decreased from 64.51 in the month ending Dec. 21 to 60.99 in the month ending Jan. 20 and declined to 57.53 in the month ending Feb. 19.

Industries categorized as "others" registered the highest PMI measured for "fuel consumption" (76) while “vehicles and related components" registered the lowest (44.4).

The "sales" sub-index decreased from 54.12 in the ninth month of the current year to 45.63 in the 10th month but increased to 46.43 in the 11th fiscal month.

“Others” posted the highest sales PMI each with a reading of 80 while non-metallic mineral industries registered the lowest PMI with a reading of 18.8.

The "production forecasts for the following month" sub-index decreased from 62.57 in the month ending Dec. 21 to 62.05 in the month ending Jan. 20 and declined to 61.41 in the month ending Feb. 19. Its sub-index "machine producers and home appliances" registered the highest PMI reading of 78 and "wood, paper and furniture" the lowest PMI reading of 34.4.

PMI, among the most precise indicators showcasing a country’s economic condition, was first devised by the Institute for Supply Management in the United States in 1948. It is calculated as (P1 * 1) + (P2 * 0.5) + (P3 * 0) where P1 is the percentage of answers reporting an improvement, P2 is percentage of answers reporting no change and P3 is percentage of answers reporting a deterioration.