Iran’s economy is only beginning to recover

7 november 2016

Every fall the IMF updates its economic forecasts for the next few years. The current stability of oil prices, low interest rates in the leading economies, signs that things are looking up in Russia and Brazil have promoted the IMF to keep its projections largely unchanged, except for a small downward revision of the expected global economic growth and a minor upward revision of Russia’s GDP growth projections, write Analytical Center experts on the pages of their current global economic trends bulletin ’Taking the Pulse: IMF’s Updated Forecast. In Focus: Iran - Life After Sanctions.’

The IMF expects the global economy (PPP GDP) to grow by 3.08% in 2016, which is almost 0.1 percentage points below in the World Economic Outlook (WEO) the IMF published back in April 2016 (3.16%) and 0.5 percentage points less than in the October 2015 WEO (3.56%)   In the medium term, the global economy (PPP GDP) is expected to gradually pick up pace to 3.8% growth by 2021 thanks to the emerging economies (especially India, the ASEAN countries, the Middle East and Latin America), whose average GDP growth rate is expected to exceed 5% in 2020. At the same time, the growth of many key economies of the world is projected to slow down: China’s growth is expected to slow down from 6.9% in 2015 to 5.8% in 2021, the EU’s GDP growth rate is projected to go down from 2.3% in 2015 to 1.7% in 2021 and the US’s from 2.6% to 1.6%.

The experts also look at the situation with Iran in the bulletin. The country just spent 3.5 years under very serious international sanctions in technology, oil exports and access to financial markets (both capital markets and access to payment systems). While the sanctions were in place, Iran had to adapt and find ways to substitute for imports. After the embargo on exports of oil to the EU was imposed in 2012, Iran’s GDP in real terms fell by a whopping 6.6% practically overnight, inflation went through the roof, exports collapsed and the Iranian rial lost 50% of its value relative to the US dollar, the analysts note. ‘It has to be said the losses were significant, the economic growth plummeted, but the system as a whole did not collapse. Since the sanctions were lifted in the summer of 2016, Iran’s been restoring its oil production and exports and is now demanding that it be given its old share in the total OPEC output. Naturally, this is creating certain difficulties in the oil market where demand is rising slowly by 1-1.5 million barrels a day per year and there’s significant downward pressure on the global prices,’ the experts write.

But the economy of the OPEC’s second largest player in terms of oil production is only just beginning to recover, the specialists are sure. The IFM prognosticates that in 2016 and 2017 Iran’s GDP in real terms will grow by 4.5% and 4.1% respectively. The experts believe it is now largely depends on Iran whether the currently discussed cap on global oil production to stabilize prices would even be possible.

For more see the bulletin: Taking the Pulse: IMF’s Updated Forecast In focus: Iran - Life after Sanctions

For other issues of our bulletin on current trends in the global economy see Publications.

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