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Iran Economy Update
Issue 82/2017
THURSDAY SEPTEMBER 7TH
Iran and Japan seek fostering economic ties
Iran’s Minister of Foreign Affairs said he is hopeful that along with political ties, Japan becomes a strong partner for the Islamic Republic in economic fields such as transport, energy, oil and gas sectors, IRNA reported on Wednesday. Javad Zarif made the comments during his meeting with visiting Masahiko Kōmura, the special envoy of Japan’s Prime Minister who is also head of the Iran-Japan Parliamentary Friendship Group. According to IRNA, Kōmura told Zarif that the arrangements for realizing the credit line agreement for financing Iranian projects are undergoing their final administrative procedures in Japan.
Of note, Japanese news sources reported in September 2016 that the state-backed Japan Bank for International Cooperation and Nippon Export and Investment Insurance gave Iran a credit line worth $10 billion. In a meeting with his Japanese counterpart in Tehran in September 2016, Iran’s Deputy Foreign Minister Abbas Araghchi said “we are sure that this action by Japan will lead to the blossoming of the two countries’ financial ties.” Japan Times quoted Japanese Deputy Foreign Minister Kentaro Sonoura as saying during meeting with Araghchi that the two sides had “very good” meeting and “discussed how to expand mutual relations and cooperation in order to prepare needed infrastructure to reach goals in financial and economic issues in the post-sanctions era.” The two also discussed how to ensure stable means for settling financial transactions to ensure Japanese firms won’t get mixed up in US sanctions related to Iran’s support for terrorism, Sonoura said, according to the Japan Times.
SCI puts GDP growth rate for spring 2017 at 7%
The Statistical Center of Iran (SCI) has put the non-oil GDP growth rate for spring 2017 at 6.5%, Mehr news reported on Wednesday. If oil sector be included in the calculations, the country’s GDP growth would be 7%, the SCI report shows. Sector breakdown of the economic growth rate according to the SCI report is shown in the following table. As the table depicts, the SCI report indicates that none of the Iranian economic sectors experienced negative growth in the first quarter of the current Persian year.
Sector GDP Growth in spring 2017 Agriculture 3.1%
Industry 4.9%
Service 8.3%
Oil GDP growth 6.5 Non-oil GDP 7
According to the SCI, the oil and non-oil GDP growth rate for the Iranian economy in the last Persian year (ended 20 March) were 12.5% and 3.3%, respectively.
In a report released on June 5, the World Bank estimated that Iran’s economy will grow by 4.1 and 4.2 percent in 2017 and 2018, respectively. The report titled “Global Economic Prospects,”
cited Iran as the second largest economy in the region and explains that the two factors of limited spare capacity in oil production as well as difficulty in accessing finance will push down economic growth rate in the country to 4% in 2017. The report also refers to the US sanctions against Iran imposed in early 2017 and states that it may deter foreign investors’ confidence.
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In December 2016, the International Monetary Fund (IMF) had estimated that higher oil production and exports would allow Iran’s real GDP growth to rebound to 6.6% in 2016, but the rate would ease to 3.5% in 2017 as oil production normalizes and non-oil sector growth remains modest. Indeed, the dominance of the oil sector in the wake of the implementation of the nuclear deal has been the main reason for the accelerated pace of GDP growth rate in Iran in 2016. Last year, Iran managed to almost double its oil production and exports and raise them to the pre-sanctions levels of 4 mm bpd and 2.5 mm bpd, respectively. However, since no further robust jump is expected to happen in the coutnry’s oil output and exports in 2017, Iran’s GDP growth would relatively be modest, and as estimated by the WB and IMF, would hover around 4%.
Iran’s GDP rate projection according to IMF and WB estimates
2016 2017 World Bank 6.6% 4%
IMF 6.4% 3.5%
Meanwhile, the CBI last week announced that the inflation rate for the Persian month of Mordad (23 July – 22 August) was 10%, indicating a 0.3 percentage point decline compared with the previous month and an increase of 1.1 percentage point compared with the similar month last year. The following table shows the fluctuations of inflation rate in Iran since August 2013 when power was transferred from former populist hardline president Mahmoud Ahmadinejad to President Hassan Rouhani.
3%
5.8%
3%
-6.8%
-1.9%
3%
-1.6%
12.5%
-10 -5 0 5 10 15
2009 2010 2011 2012 2013 2014 2015 2016
GDP growth rate in Iran
0 5 10 15 20 25 30 35 40 45
4-year trend of inflation rate in Iran Aug 2013
40.1%
Aug 2014 21.1%
Aug 2015 15.1%
Aug 2016 8.8%
Aug 2017 10%
