World Bank Revises Up Forecasts, Estimates About Iran’s GDP Growth

October 12, 2021
banking

T he World Bank has revised up its estimates and forecasts about Iran’s economic growth.

In a new report titled “Overconfident: How Economic and Health Fault Lines Left the Middle East and North Africa Ill-Prepared to Face Covid-19,” the bank has put its 2021 expectation for Iran’s GDP growth at 3.1%, which is 1% more than its previous forecast.

The revised-up 2022 forecast is now at 2.4% - 0.2% more than previously expected.

According to the MENA economic update for October, the Iranian economy grew by 3.4% in 2020. Previously, the World Bank said it grew by 1.7%.

Iran’s economy saw 6% and 6.8% contraction in 2018 and 2019 respectively, the bank says.

Real GDP per capita growth is forecast to hit 1.8% and 1.2% in 2021 and 2022 after having experienced a 2.1% expansion in 2020 and an 8% contraction in 2019, the report shows.

This is the second time the World Bank is revising its estimates and forecasts about Iran’s economy. The first time was back in June.

“The last two years have shown that economic performance depends to an important extent on pandemic control. Stressed health systems have combined with global economic factors, such as fluctuations in commodity prices, particularly oil, to produce an uneven economic recovery for the region and a tenuous outlook. The region is forecasted to grow by 2.8% in 2021 and by 4.2% in 2022, but these averages mask important differences across countries,” the report reads.

“Each economy’s performance depends heavily on its exposure to commodity-price fluctuations and how well it managed the pandemic. More important, most countries might not rebound fast enough to reach their pre-pandemic levels of gross domestic product [GDP] per capita until 2022, let alone the levels predicted before the pandemic. Downside risks abound, including the possibility of a prolonged pandemic, especially in the middle-income and low-income countries in MENA, where vaccinations are lagging.”

In summation, the World Bank noted that the crisis caught most MENA countries with underfinanced, imbalanced and ill-prepared health systems.

“Most countries were hit hard by the Covid-19 crisis but there is a silver lining in two respects: First, some countries were able to adapt and react quickly to the pandemic and managed impressive responses both on the policy and pandemic containment fronts. Unfortunately, many other countries in the region did not. Second, the use of data — a necessary ingredient — became center-stage for public health policymaking and the advances made in this regard can be built upon for deeper reforms and building preparedness capacity after the pandemic,” the report said.

IMF Estimates, Forecasts

On the other hand, the International Monetary Fund expects Iran’s economy to grow by 2.5% in 2021.

In its World Economic Outlook report titled “Managing Divergent Recoveries”, the IMF has put Iran’s GDP growth in 2020 at 1.5% and its projection for 2022 is at 2.1%.

According to IMF, the country experienced a 13.4% growth in 2016, the year Iran’s nuclear deal with world powers, formally known as the Joint Comprehensive Plan of Action, was implemented and international sanctions against the Islamic Republic were lifted.

The massive growth was followed by a further 3.8% in 2017. But with the withdrawal of the US from JCPOA under the former US administration and introduction of new rounds of sanctions, the Iranian economy shrank by 6% and 6.8% in the following two years.

In its preface, the “Managing Divergent Recoveries” report refers to the implications of Covid-19 for the world economy and says: “We are now projecting a stronger recovery in 2021 and 2022 for the global economy compared to our previous forecast, with growth projected to be 6% in 2021 and 4.4% in 2022. Nonetheless, the outlook presents daunting challenges related to divergences in the speed of recovery both across and within countries and the potential for persistent economic damage from the crisis.”

The IMF report noted that divergent recovery paths are likely to create significantly wider gaps in living standards between developing countries and others, compared to pre-pandemic expectations.

“Cumulative per capita income losses over 2020–22, compared to pre-pandemic projections, are equivalent to 20% of 2019 per capita GDP in emerging markets and developing economies [excluding China], while in advanced economies, the losses are expected to be relatively smaller, at 11%. This has reversed gains in poverty reduction, with an additional 95 million people expected to have entered the ranks of the extreme poor in 2020, and 80 million more undernourished than before,” the report said.

Besides the pandemic, Iran’s economy has been grappling with the US maximum pressure campaign since 2018, but the new US government led by Joe Biden is looking to revive JCPOA.

The revival talks have been stalled as the government in Iran changed following the election of Ebrahim Raeisi as the new president.

Domestic Reports

The Statistical Center of Iran says the economy registered a 7.6% year-on-year growth in the first quarter of the current fiscal year that started on March 21.

The industries and mines, and services grew by 13.8% and 4.5% respectively, but agriculture contracted by 4.5%, according to a new report posted on the SCI website.

The center noted that GDP growth, without taking into account the oil sector, stood at 4.6% in Q1 (spring).

The SCI report came shortly after the Central Bank of Iran reported that the Iranian economy grew by 6.2% in Q1.

According to a new report published on the bank’s website, except for the drought-hit agriculture with -0.9%, all economic sectors saw growth during the period (spring): oil with 23.3%, industries and mines with 2.1% and services with 7%.

Noting that services has shown distinct signs of recovery after having been hit hard by the Covid-19 pandemic in the first quarter of last year (registering a -2.5% growth), the report attributes the expansion mainly to the subsectors of “transportation and warehousing”, “health and social work”, “wholesale, retail and auto repair”, “information and communications” and “professional, scientific and vocational.”

The report added that growth, excluding the oil sector, stood at 4.7% in Q1.

According to CBI, the economy also expanded in the fiscal 2020-21.

Iran’s GDP in the last fiscal year (March 2020-21) registered a 3.6% growth, according to an earlier report.

Economic growth, excluding oil, expanded by 2.5%, it added.

According to SCI, last fiscal year’s GDP expanded by 0.7% compared with the year before.

Economic growth, excluding oil, saw an economic growth of near zero.

The center’s sectoral breakdown of growth rates shows that the agriculture and industries and mining sectors experienced a respective growth of 3.5% and 4.2% during the period. The services sector contracted by 2% in the fiscal 2020-21.

Discrepancies were also seen in SCI and CBI reports on Iran's economic growth in the fiscal 2019-20.

According to SCI, the Iranian economy experienced a -7% contraction in the fiscal 2019-20, as GDP shrank by -0.6% without taking oil production into account.

The sectors of industries and mines, and services saw a respective contraction of 14.7% and 0.3%. This is while CBI put the fiscal 2019-20 growth at -6.5%. Excluding the oil sector, growth was put at 1.1%.

According to the bank, the oil sector shrank by a whopping 38.7% amid sanctions on Iran's oil sales.

The sectors of agriculture, and industries and mines saw respective growths of 8.8% and 2.3%, as services contracted by 0.2% in CBI’s account.

Iran's gross domestic product shrank by 4.9% in the fiscal 2018-19 compared to the year before, according to SCI, with production of the two groups of industries and agriculture at -9.6% and -1.5% respectively and services at 0.02% growth. The center put that year's growth, excluding oil production, at -2.4%.

The CBI did not release any report for the fiscal 2018-19 economic growth.

Iran’s economy emerged from recession in the fiscal 2014-15 with a 3% growth after two years of recession when the economy contracted by 5.8% and 1.9% back to back, according to the Central Bank of Iran.

Growth in 2015-16 has been put at -1.6% by CBI and 0.9% by SCI.

The CBI has put 2016-17 growth at 12.5% while SCI says it was much lower and near 8.3%.

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