Iran Chamber of Commerce Report on Deteriorating Economic Outlook Indicators

The Research Center of the Iran Chamber of Commerce has reported a worsening of the economic outlook indicators in its latest report on the "Purchasing Managers' Index". The report states that in the coming months, a shortage of raw materials could seriously affect the improvement of the economic situation, particularly in the industrial sector. The Research Center indicates that a significant trade deficit in the year 1402 (2023-2024) and the widening gap between the free market exchange rate and the Nima exchange rate in recent months are factors that could limit the foreign currency resources available for importing raw materials in the coming months. Previously, the International Monetary Fund had predicted that Iran's economic growth would decrease from 4.7 percent last year to 3.3 percent this year and 3.1 percent next year. Iran's non-oil trade deficit also peaked last year at nearly $17 billion, setting a historical record. The Research Center warns that a potential increase in the exchange rate and a reduction in currency allocation for importing raw materials in the coming months will exacerbate the limitations on access to production raw materials, consequently halting the improvement in the industrial sector. In recent weeks, numerous reports have emerged about the government's inability to allocate currency for importing goods, including medicine. The dollar rate against the Iranian rial, despite a relative decline compared to last month, is still 20 percent higher than in Ordibehesht last year. The Purchasing Managers' Index, also known as "Shamkh", indicates that if the obtained number exceeds 50, it signifies a developing economy, while a number below 50 indicates an economy on the verge of contraction and recession. The Iran Chamber of Commerce report assessed the Purchasing Managers' Index for Farvardin (the first month of the Persian calendar) this year at 39.6, which, after adjustment (removing the effect of the Nowruz holidays), reached 51.5. Although this shows a relative improvement compared to Esfand (the last month of the previous year), it is still lower than the Shamkh of Farvardin last year, which was approximately 53.7 after adjustment. Details of the overall Shamkh indicate that some components are experiencing declines, particularly the index of "production or service delivery", which was estimated at 49 after adjustment in Farvardin, indicating that the production of goods and services in this month decreased compared to Esfand 1402, even after removing the effect of the Nowruz holidays. The index of "inventory of raw materials or purchased goods" in Farvardin was also estimated at 49.7, confirming a reduction in raw material inventory for producing goods, while the index of raw material prices reached 72.3, indicating a significant increase in raw material prices compared to Esfand 1402. While Iran's non-oil exports faced a 7 percent decline last year, the Chamber of Commerce report shows that the index of "export volume" in Farvardin this year was about 48.1, even after seasonal adjustment, indicating a relative decrease in goods exports compared to Esfand 1402. Meanwhile, the index of "employment and utilization of human resources" in Farvardin was estimated at 52 after seasonal adjustment, but the Chamber of Commerce states that although the trend of this index in the second half of the year 1402 indicates a continuous improvement in employment in the country, the conditions are not the same for all skill levels. According to this report, existing evidence and statements from economic activists indicate that high inflation and ongoing pressures from the cost of living have led unskilled labor to be unwilling to work at current wage levels, creating "serious problems" for some economic sectors.