Iran's Economic Growth Rate Announced at 0.4% for the First Half of the Year

The Statistical Center of Iran reported that the economic growth rate of Iran in the first half of this year was 0.4% when including oil and 0.3% without oil. According to the results of this report, Iran's gross domestic product (GDP) at constant prices of 2011 reached 373 trillion and 889 billion and 500 million tomans, which represents a 0.4% growth compared to the GDP in the first half of last year. The GDP of Iran without considering oil at constant prices of 2011 was reported at 289 trillion and 959 billion and 200 million tomans, showing a 0.3% increase compared to the same figure in the first half of last year. The report indicated that in the first six months of this year, the economic growth rate of two out of three main groups studied was negative, with only the services sector experiencing a 2.3% growth. The agricultural sector had a negative performance, ending with a growth rate of -2.5%. The industrial sector also recorded a decline, with a growth rate of -1.2% compared to the previous year. The Statistical Center of Iran calculates the GDP based on 18 main sectors consisting of 42 activities. Among these activities, the highest growth rate was in the 'fishing' sector, which experienced a 7% growth compared to the same period last year. The lowest growth rate was in the 'water, electricity, and natural gas supply' sector, which saw a decline of -5.5%. The construction sector, one of the most important economic sectors in Iran, experienced a -4.5% growth rate in the first half of this year compared to the same period last year. Another important component of the report was the growth of GDP by examining final consumption expenditure components. In the first half of this year, private final consumption expenditure grew by 1.6% compared to the same period last year. However, a breakdown of the growth rate of private final consumption expenditure over the two completed quarters shows a concerning trend: private final consumption expenditure grew by 4.1% in spring but dropped significantly to -0.4% in summer, resulting in an overall growth rate of 1.6% for the first six months. If private final consumption expenditure continues to decline in the second half of the year, an economic recession is likely. The significant drop in private final consumption in summer compared to spring indicates a decrease in people's purchasing power or a reduction in their willingness to spend due to concerns about the future of the economy, which is not encouraging overall. However, government final consumption expenditure experienced a growth of 5.9% in the first half of this year, which, although lower than previous years, has been stable. Another noteworthy point in the report is the negative growth of gross fixed capital formation in the first half of this year, which decreased by -2.7% compared to the same period last year. The growth rate of gross fixed capital formation was 0.3% in spring but dropped significantly to -5.6% in summer. The rate of gross fixed capital formation reflects the trend of non-cash investment in economic units, analyzed in two subsectors: investment in construction and machinery. Gross fixed capital formation has been negative for eight consecutive quarters from winter 2014 to fall 2016, until it turned positive in winter 2016. After experiencing six consecutive quarters of positive growth, the rate of gross fixed capital formation has turned negative again. The declining trend in gross fixed capital formation in summer and this directional change should be analyzed in the context of severe fluctuations in currency prices in the free market and concerns about the consequences of the re-imposition of U.S. sanctions, which have deterred economic actors from investing. How will Iran's economy fare after sanctions? Previously, the Research Center of the Iranian Parliament predicted the state of Iran's economy post-sanctions in two optimistic and pessimistic scenarios. According to that assessment, in the optimistic scenario, Iran's economic growth rate in 2018 would decrease to -0.5%. In this scenario, the economic growth rate in the following solar year would drop to -3.8%, indicating worsening economic problems due to continued sanctions. In the pessimistic scenario, the growth rate in 2018 would be -2.8%, potentially falling to -5.5% in 2019.