Iran Overall Economy’s PMI Plummets to 23-Month Low

The PMI, known by its Farsi acronym Shamekh, settled at 37.49 for the month under review from 54.74 registered in the previous month, indicating a 17.25-point or 37.07% decline.

The Purchasing Managers' Index indicates the prevailing direction of economic trends in the manufacturing and service sectors. The headline PMI is a number from 0 to 100, such that over 50 indicates an economic expansion compared with the previous month. A PMI reading under 50 indicates contraction and a reading of 50 implies no change. 

PMI is an index of the prevailing direction of economic trends, aiming to provide information about business conditions to company directors, analysts and purchasing managers.

According to the Statistics and Economic Analysis Center of Iran Chamber of Commerce, Industries, Mines and Agriculture, the sponsor and coordinator of the report, the first fiscal month (started March 21) typically sees a decline in economic activity every year as it starts with the Iranian New Year holidays, as businesses only have 15 working days.

However, considering the shortage of working capital and decline in purchasing power, the drop in economic activities has been more pronounced this year.

Moreover, uncertainty about the fate of the nuclear deal and the price of dollar against the rial, decline in demand and rise in raw material prices have given rise to confusion among business owners and producers, as they cannot plan ahead and foresee an outlook. 

PMI Sub-Indexes

The survey has five main indices to calculate the overall PMI.

Notably, all PMI sub-indices stood below the 50-mark, except for “employment”.

According to the report, the “business output” sub-index increased from 55.7 in the last fiscal year’s 11th month (Jan. 21-Feb. 19) to 58.81 in the 12th month (Feb. 20-March 20) and declined to 28.52 in the first month of the current fiscal year (March 21-April 20).    

The “new orders” sub-index increased from 47.9 in the 11th month of last year to 55.44 in the 12th month of last year and decreased to 29.34 in the first month of the current fiscal year.    

The “supplier deliveries” sub-index, which measures how fast deliveries are made increased from 55.42 in the month ending Feb. 19 to 59.76 in the month ending March 20 and declined to 48.16 in the month ending April 20. 

The “raw materials inventory” sub-index increased from 47.29 in the month ending Feb. 19 to 54.74 in the month ending March 20 and declined to 41.64 in the month ending April 20.    

The PMI reading of “employment” sub-index decreased from 51.05 in the month ending Feb. 19 to 44.82 in the month ending March 20, but grew to 50.85 in the month ending April 20.   

To calculate PMI, seven secondary criteria are 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 grew from 73.65 in the month ending Feb. 19 to 78.47 in the month ending March 20 and increased to 83.26 in the month ending Apr. 20.  

The “warehouse inventory” sub-index decreased from 51.76 in the month ending Feb. 19 to 50.83 in the month ending March 20, but increased to 52.16 in the month ending Apr. 20.    

The “exports” sub-index increased from 48.51 in the 11th month to 54.02 in the 12th month and declined to 38.65 in the first month.        

The “prices of manufactured products or services” sub-index increased from 54.37 in the month ending Feb. 19 to 57.97 in the month ending March 20 and grew to 63.13 in the month ending April 20.  

The “fuel consumption” sub-index decreased from 55.17 in the month ending Feb. 19 to 48.48 in the month ending March 20 and declined to 34.81 in the month ending April 20. 

The “sales” sub-index increased from 50.66 in the month ending Feb. 19 to 55.37 in the month ending March 20 but declined to 34.27 in the month ending April 20.     

The sub-index of “business output forecasts for the following month” decreased from 61.77 in the month ending Feb. 19 to 35.29 in the month ending March 20, but increased to 72.05 in the month to April 20, the lowest since the final month of fiscal 2019-20.      

The overall PMI increased from 51.55 in the month ending Feb. 19 to 54.74 in the month ending March 20 and declined to 37.49 in the month ending April 20.   

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.