Calm Before the Crisis; Iran's Economic Growth Rate Reached 1.8% in Spring

When Hassan Rouhani took office in August 2013, he described the dire economic conditions his government inherited, painting a grim picture of the economy, particularly in terms of its performance. This portrayal was later reflected in the Central Bank and Statistical Center of Iran's reports on economic growth rates and other macroeconomic indicators. According to the Central Bank's account, Iran's economic growth rate in Spring 2013 was -4.1%. Economic growth is defined as the change in a country's Gross Domestic Product (GDP) over a specified period. Thus, in Spring of that year, Iran's economy had contracted by four percent compared to the previous spring. Recently, the Central Bank and the Statistical Center of Iran released separate reports indicating that the economic growth rate for this spring has increased by 1.8%. Last spring, this growth rate was reported at 4.6%, meaning that although Iran's economy experienced less than two percent growth this spring, it was 2.8 percentage points slower than the previous year's growth rate, indicating a slower addition to the value of Iran's economic output. If we exclude oil's contribution from this spring's economic growth, the growth rate drops to 0.7%, meaning that according to the Central Bank's calculations, the oil sector alone accounted for 1.1% of the economic growth in the first quarter of this year. However, according to the Statistical Center of Iran, the economic growth rate for this spring was 1.7%, a figure close to the Central Bank's estimate, but with the difference that the Statistical Center's reported growth rate, excluding oil sector developments, rises to 1.9%, indicating that oil sector developments were negative in the first quarter of this year. The statistical discrepancies between the two main centers producing economic and statistical reports in Iran are not new and have been repeated in other reports on macroeconomic indicators. This statistical difference relates to the methods of calculation, different base years, models used for preparing these reports, and the sources of the initial figures from these two institutions. From Spring 2013 to Spring 2018, the highest quarterly growth rate occurred in Fall 2016, primarily attributed to the oil sector's performance following the signing and implementation of the JCPOA in Fall and Winter 2015. The lifting of sanctions, gradual increases in idle production and oil export capacities, and the return of Iran's economy to global markets and reclaiming traditional oil, gas, and petrochemical markets facilitated this economic growth. The return of some foreign partners to domestic automakers and the relative revival of these factories' production lines also contributed to the increase in economic growth rates during those quarters. The economic growth rate in Iran reached 16.8% in Fall 2016. However, this peak did not continue, as after completing existing production and export cycles in the oil and gas sector, further growth required new foreign investments and the transfer of modern technology, a time-consuming process that needed to be accompanied by assurances regarding Iran's political and economic future. Changes in Washington and the different approach of the new White House occupants towards the nuclear agreement with Iran hindered the emergence and continuation of such developments. Iran's economy was unprepared to join the global economy, lacking transparency and the necessary institutional frameworks to convince investors to invest, along with existing structural barriers to business in Iran, which further exacerbated the situation, preventing the short-lived opportunity that arose between the signing of the JCPOA and the U.S. withdrawal from the agreement from meeting expectations. Analyzing the value added by the groups constituting Iran's economic growth rate reveals interesting points; according to the Central Bank's report, the growth rate of Iran's agricultural sector this spring compared to Spring 2017 was only 0.3%. This sector's growth rate was reported at 2.2% last spring. The growth rate of this sector in the Statistical Center of Iran's report, based on its estimates, was projected at -0.8% this spring. It seems that unfavorable rainfall conditions had the most negative impact on the reduction of growth in this sector. The growth of the oil sector in the Central Bank's report on Iran's economic developments in Spring 2018 was reported at 5.2%, which did not change significantly compared to the 5.9% growth of this sector in the previous spring. It is expected that this sector's growth will experience further declines in the next quarterly report, namely Summer. In the Central Bank's report, the growth rate of the industrial and mining group this spring was recorded at 0.1%, indicating that the value of production in this group remained stable this spring. The growth rate of this group was 4.6% last spring. The production index of large industrial workshops this spring decreased by half a percent compared to the previous year. About 70% of the value added in the industrial sector is produced in these workshops. Changes in the value added of the industrial and mining groups are of particular importance due to their breadth, extensive production chains, and the number of jobs in this sector. In the Statistical Center of Iran's report, developments in the oil sector are also categorized under industrial changes, with the growth rate of the industrial group this spring compared to last spring showing a 0.4% increase. Finally, another group whose value-added developments were noted this spring is the services group, with a reported growth rate of 1.1% by the Central Bank, down from 4.3% last spring. However, the growth rate of this group in Spring 2018 was evaluated at 3.2% according to the Statistical Center of Iran. The services sector holds the largest share of employment in Iran's economy. The following chart compares the trends in the growth rates of the groups constituting the economic growth rate and changes in GDP over the past six springs from Spring 2013 to Spring 2018. The economic growth rate, alongside two other macroeconomic variables, namely inflation and unemployment, are the most important macroeconomic indicators. With the publication of this tripartite report on Iran's macroeconomics in spring, it was completed. Previously, the unemployment rate was reported at 12.1% this spring, which is 0.5 percentage points lower than last spring, reducing the number of unemployed by about 45,000. Now, the less than two percent growth rate this spring can justify the slight decrease in the unemployment rate compared to the same season last year. However, considering the developments related to the impact of sanctions on Iran's economy, the price surge of various currencies, and disruptions in the import of intermediate goods and raw materials needed for production, along with reports of halting or reducing production in some industries and sectors, it can be expected that the next report on unemployment and the quarterly GDP growth rate will show significant changes. Previously, the Research Center of the Parliament published a report assessing Iran's economic developments, focusing on the impact of U.S. sanctions against Iran's economy and the extent of compliance by the European Union and other trade and economic partners with these restrictions, predicting that Iran's economic growth by the end of this year would decline to -0.5% or -2.8%.