Country Report Iran September 2017
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_________________________________________________________________________________________________________________________________________________________ Country Report Iran Generated on November 13th 2017 Economist Intelligence Unit 20 Cabot Square London E14 4QW United Kingdom _________________________________________________________________________________________________________________________________________________________ The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For 60 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. 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ISSN 2047-5020 Symbols for tables "0 or 0.0" means nil or negligible;"n/a" means not available; "-" means not applicable Iran 1 Iran Forecast Highlights Outlook for 2017-21 3 Political stability 4 Election watch 4 International relations 5 Policy trends 5 Fiscal policy 6 Monetary policy 6 International assumptions 7 Economic growth 7 Inflation 8 Exchange rates 8 External sector 8 Forecast summary Data and charts 9 Annual data and forecast 10 Quarterly data 11 Monthly data 12 Annual trends charts 13 Monthly trends charts 14 Comparative economic indicators Summary 14 Basic data 16 Political structure Recent analysis Politics 18 Forecast updates 24 Analysis Economy 32 Forecast updates 33 Analysis Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 2 Highlights Editor: Mohamed Abdelmeguid Forecast Closing Date: September 21, 2017 Outlook for 2017-21 Political stability under the reformist president, Hassan Rouhani, who secured a second presidential term in the May 2017 election, will be weakened by polarisation between his camp and his conservative opponents. Despite the US administration's hostility to the nuclear deal (and the intro duction of new US sanctions), we expect Iran to stay committed to its terms, in order to retain the economic gains of the agreement. We expect Iran's fiscal account to record modest (but widening) deficits in 2017 21 as a rampingup of capital spending is only partly offset by rising oil revenue on the back of higher prices (compared with 2015 16) and output. Real GDP growth in Iran will slow compared with 2016 but will remain above that in the rest of the Middle East as (non-US) inward investment rises. We expect growth to average 5.5% a year in 2017/18-2021/22. The official rial rate will weaken markedly in 2018, in line with the government's (delayed) plan to merge it with the market rate. The pace of depreciation will then slow, with the rial averaging IR46,821:US$1 in 2021. We forecast that the current account will narrow but remain in surplus in 2017 21, buttressed by rising oil and nonoil exports, which will partly offset a growing import bill (on the back of pent-up demand and rising investment). Review Saudi Arabia is engaging in dialogue with key Iraqi politicians, such as Moqtada al Sadr. Despite Saudi efforts, Iranian economic, political and military ties with Iraq will remain strong. A quarterly report from the UN International Atomic Energy Agency has confirmed that Iran is adhering to the 2015 nuclear agreement. We do not foresee US pressure successfully derailing the nuclear deal between Iran and world powers. On August 25th Qatar's ambassador, Ali Hamad al Sulaiti, returned to Iran after a diplomatic absence that lasted a year and a half. The Qatar crisis has given Iran an opportunity to forge a new alliance with an Arab neighbour. Iran Khodro Diesel, the trucks division of Iran Khodro, has signed a major deal with Germany's Mercedes-Benz Daimler to import heavy duty vehicles. The auto sector will remain a major beneficiary of foreign investment inflows, helping to drive economic growth and jobs. Ali Kardor, the managing director of the National Iranian Oil Company, has announced that Iran intends to increase oil production to 4.5m barrels/day by 2023. Iran will comfortably surpass pre-sanctions crude production levels by the end of 2021. Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Iran 3 Outlook for 2017-21 Political stability The Economist Intelligence Unit expects the president, Hassan Rouhani, to continue with gradual economic liberalisation and social reform in his second presidential term, which he secured in the election held on May 19th. Having gained partial sanctions relief for Iran in 2015, with the signing of the Joint Comprehensive Plan of Action (JCPOA) with world powers, Mr Rouhani has deepened his support base among younger and middle-income Iranians who want greater domestic freedom and economic integration with the outside world. The deal will undoubtedly be good for the economy in the long term, although its positive effects have yet to trickle down to young Iranians, who will continue to grapple with limited employment opportunities and stagnant real wages, at least in the early years of the forecast period. In addition, there is resistance among vested interests—especially religious foundations and the Islamic Revolutionary Guards Corps (IRGC)—to the current government's strategy of increasing competition and transparency as part of a plan to foster a more vibrant private sector. Nonetheless, Mr Rouhani will benefit from the fractious nature of the hardline conservative camp. Mr Rouhani's reformist drive and diplomatic outreach will be threatened both by resistance among hardliners in Iran and by the US presidency of Donald Trump, whose administration is adopting a far more confrontational approach towards Iran than that of his predecessor, Barack Obama. Although Mr Trump has renewed sanctions relief for Iran (within the framework of the JCPOA), he simultaneously signed major arms deals with Iran's main rivals in the region—chiefly Saudi Arabia. The Trump administration put forward fresh sanctions in July tied to Iran's missile programme and its role in regional conflicts, which often involves backing sectarian regimes and militias. This US stance will encourage Mr Rouhani's opponents in Iran, who fear that the JCPOA might lead to broader political change. However, such an uneasy balance will prove difficult to sustain. In particular, the heightening of confrontational rhetoric between Iran and the US following Mr Trump's inauguration will result in increased pressure from Iranian hardliners to withdraw from the JCPOA. Nonetheless, we expect the supreme leader, Ayatollah Ali Khamenei, to stick with the JCPOA, reflecting a desire not to jeopardise rising investment from abroad and a calculation that Iran has an opportunity to isolate the US from other world powers (which are likely to remain committed to the agreement). In any case, the hardliners will continue to interfere in daily decisionmaking, with— notably—the intrusions of the unelected Guardian Council (a vetting body dominated by hardliners) proving a continual source of irritation for the president and his pro-business cabinet. This situation will be exacerbated by the unpredictable interventions of the IRGC in the country's political and economic spheres, as well as the residual dominance of vested business interests. As a result, political and social reform will be stifled, and economic liberalisation will proceed inconsistently. Amid these political machinations, speculation