Eminent economists recently discussed Iran’s economic outlook for the upcoming Iranian year, which starts on March 21, 2017, at a conference held in Tehran.
The conference's first speaker was Mehdi Barakchian, deputy for research at the Institute for Management and Planning Studies, who said Iran’s industrial sector will be a major contributor to growth during the new fiscal year.
“Industrial firms listed in Tehran Stock Exchange have witnessed positive growth in sales in the current Iranian year. Their growth reached 16% in the third quarter. This is while last year, sales and production registered negative growth during most of the period,” he said.
The industrial sector, according to Barakchian, has been a major contributor to the strong growth experienced so far this year.
Iran's economic growth for three quarters of the current fiscal year (March 20-Dec. 20, 2016) stood at 7.2%, according to the Statistical Center of Iran. Excluding the growth in oil sector, the rate stood at 5%.
According to SCI, the industrial sector was the main driver of economic growth during the period, expanding by 10.5%.
The recent economic growth in Iran owes greatly to the removal of sanctions against the country, especially against its oil sector, as part of the nuclear deal Tehran signed with world powers in 2015, which opened up Iran's economy to the world.
The SCI report on Iran's economic growth for the first half of the year showed that the oil sector registered the highest increase in GDP in the period with a growth of 61.3%. A 55.4% and 67.2% growth was reached in the first and second quarters respectively.
Nonetheless, Barakchian believes the effect of oil in the upcoming year's growth will wane, as production will stabilize after it surged following the removal of sanctions. He said Iran's gross domestic product will be influenced by growth in other sectors such as manufacturing, construction and agriculture instead.
According to government data, Iran is now pumping more than 3.9 million bpd of crude oil and condensates and the output is expected to reach the 4-mbpd mark in April, the level it used to ship before the tightening of sanctions. Oil exports stand at around 2.8 million bpd.
Production peaked at 4.2 million bpd for a short spell before the international sanctions were tightened against Tehran in 2011 and 2012.
Iran is now the third-largest OPEC producer behind Saudi Arabia and Iraq, which pump around 10 million bpd and 4.5 million bpd respectively.
However, according to Barakchian, oil will not have the positive effect on growth in the next Iranian year. GDP will be influenced by growth in other sectors such as manufacturing, construction and agriculture.
Meanwhile, the lecturer at Sharif University considered the after-effects of new Donald Trump's presidency, the upcoming presidential election in Iran, and the ailments in Iran's banking sector as the main instigators of uncertainty for Iran's economy in the coming year.
He also believes Iran's economic growth in the new year hinges on proper implementation of the nuclear deal, growth in global prices of commodities, growth in the domestic gas production as well as growth in demand.
Promising Signs in Housing Market
The use of idle capacities in the oil sector helped push growth figures up in 2016/17 and this is likely to be the case for industrial and construction sectors in the coming year.
Barakchian said the housing market is showing signs of improvement, following years of slowdown.
“There are signs that investment in the housing market is on the rise. For the first time in two years, sales of construction materials saw a 12% rise in Q3, compared with the similar period of a year before,” he said, referring to a 5% increase in production of those materials.
According to the expert, the number of construction permits issued since March 2016 has grown for the first time after two years.
Statistics released by the Central Bank of Iran and the Statistical Center of Iran show that the housing sector slipped into recession from March 20, 2012, and experienced negative growth rates ever since.
This recession has persisted through 2015-16 and is expected to continue until the end of the current fiscal year, meaning that the housing sector’s stagnation has turned into a five-year recession.
Hossein Abdoh-Tabrizi, senior economist and advisor to Iran’s Minister of Roads and Urban Development Abbas Akhoundi, told the conference that the recession has been a result of bad policies such as shifting construction loans from small dwellings to commercial complexes.
“This has led to a glut in the housing market, a surplus in the number of empty houses and an illogical rise in commercial construction,” he said.
Abdoh-Tabrizi noted that the recent rise in the sales and production of materials is associated with small housing units, suggesting that housing market is witnessing a “shift in paradigm” and that the price bubble in the housing sector may become a thing of the past.
The IEOC is organized every year with the aim of helping investors take effective decisions while providing them with crucial information to encounter the challenges ahead.
CBI advisor Hamid Qanbari and director-general of the office of planning and economy at the Ministry of Roads and Urban Development, Ali Chegini, also spoke at this year's event.
Iran’s economy emerged from recession two years ago (the fiscal March 2014-15) with a 3% growth. The rebound followed two years of recession when the economy contracted 5.8% and 1.9% back to back, according to the Central Bank of Iran. Last year's (ended March 2016) growth was put at 0.9% by the Statistical Center of Iran.
The International Monetary Fund has projected in its latest report that Iran’s economic growth will stabilize at 4.5% over the medium-term, as the country’s recovery broadens. Real GDP growth is expected to reach 6.6% in 2016/17 and to ease to 3.3% in 2017/18, as oil production remains close to the OPEC target, according to the report.
Financial Tribune
9 March
