Country Report Iran August 2018

_________________________________________________________________________________________________________________________________________________________ Country Report Iran Generated on August 21st 2018 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. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London New York The Economist Intelligence Unit The Economist Intelligence Unit 20 Cabot Square The Economist Group London 750 Third Avenue E14 4QW 5th Floor United Kingdom New York, NY 10017, US Tel: +44 (0) 20 7576 8181 Tel: +1 212 541 0500 Fax: +44 (0) 20 7576 8476 Fax: +1 212 586 0248 E-mail: [email protected] E-mail: [email protected] Hong Kong Geneva The Economist Intelligence Unit The Economist Intelligence Unit 1301 Cityplaza Four Rue de l’Athénée 32 12 Taikoo Wan Road 1206 Geneva Taikoo Shing Switzerland Hong Kong Tel: +852 2585 3888 Tel: +41 22 566 24 70 Fax: +852 2802 7638 Fax: +41 22 346 93 47 E-mail: [email protected] E-mail: [email protected] This report can be accessed electronically as soon as it is published by visiting store.eiu.com or by contacting a local sales representative. The whole report may be viewed in PDF format, or can be navigated section-by-section by using the HTML links. In addition, the full archive of previous reports can be accessed in HTML or PDF format, and our search engine can be used to find content of interest quickly. Our automatic alerting service will send a notification via e-mail when new reports become available. Copyright © 2018 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. 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 Summary 2 Briefing sheet Outlook for 2018-22 4 Political stability 5 Election watch 5 International relations 6 Policy trends 6 Fiscal policy 6 Monetary policy 7 International assumptions 7 Economic growth 8 Inflation 8 Exchange rates 8 External sector 9 Forecast summary Data and charts 10 Annual data and forecast 11 Quarterly data 12 Monthly data 13 Annual trends charts 14 Monthly trends charts 15 Comparative economic indicators Summary 15 Basic data 17 Political structure Recent analysis Politics 19 Forecast updates Economy 25 Forecast updates 31 Analysis Country Report August 2018 www.eiu.com © Economist Intelligence Unit Limited 2018 Iran 2 Briefing sheet Editor: Nicholas Fitzroy Forecast Closing Date: August 14, 2018 Political and economic outlook The Economist Intelligence Unit expects the current authorities to remain in power in 2018 22. But unrest under the president, Hassan Rouhani, will intensify as the government struggles to address structural economic issues, such as large-scale youth unemployment. Following the reimposition of US nuclear-related sanctions, Mr Rouhani will also come under increasing pressure from hardliners within the regime, weakening his position and halting his push for economic and social reform. We expect Iran's fiscal account to record deficits in 2018/19 2022/23 as proposed current spending cuts are delayed in order to appease protesters, while oil output falls. Given US withdrawal from the nuclear deal, Iran's oil exports are likely to fall by 800,000 barrels/day (b/d) compared with 2017 levels, driving the economy into recession in 2019/20-2020/21, worsened by deteriorating business and consumer sentiment. Efforts to unify the dual currencies will fail as renewed US nuclear-related sanctions increase domestic demand for foreign exchange. We forecast that the rial will be devalued from IR42,700:US$1 at present to an average of IR73,071:US$1 in 2022. We expect that the current account will remain in surplus in the forecast period (2018 22), despite declining oil export volumes, given the concurrent rise in global oil prices combined with a falling import bill as the economy slides into recession. Key indicators 2017a 2018b 2019b 2020b 2021b 2022b Real GDP growth (%) 3.8 1.6 -3.4 -1.2 0.5 0.9 Consumer price inflation (av; %) 10.0c 13.6 16.5 16.2 13.5 13.2 Government balance (% of GDP) -1.8 -2.6 -3.0 -3.5 -3.3 -3.2 Current-account balance (% of GDP) 3.4 6.0 3.2 3.5 4.8 4.5 Unemployment rate (%) 12.7 12.7 12.8 12.8 13.0 13.2 Exchange rate IR:US$ (av) 33,226 42,530 56,990 63,829 68,935 73,071 a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Actual. Country Report August 2018 www.eiu.com © Economist Intelligence Unit Limited 2018 Iran 3 Key changes since July 3rd Given rising economic pressure on Iran, we now expect a renewal of some form of dialogue between the US and Iran later in 2018 22. However, this will not happen in 2018 19 and is unlikely to yield results in the forecast period. Recent oil market developments, most notably reports that South Korea reduced its oil imports from Iran by 43% year on year in July, have led us to reduce our oil export forecasts from around 2m b/d in 2019 20 to 1.7m b/d. The oil export forecast changes have led us to revise down our 2018-22 current-account surplus forecast, from an average of 6.2% of GDP to 4.4% of GDP. We have also revised our real GDP growth forecast for 2019 from a contraction of 2.8% to a contraction of 3.4%. Central bank inflation data for July soared well above our expectations, at 18%, and we have therefore further increased our inflation forecasts, most noticeably from 11.3% to 13.6% in 2018, and from 15.5% to 16.5% in 2019. The month ahead TBC—Iran continues nuclear deal talks with European signatories: Given security and business interests, we expect the European partners to the deal to remain committed to it. They are also likely to promise non US dollar credit lines and protection of European investments to keep Iran in the deal. TBC—Consumer price inflation (August): Preliminary inflation data from the central bank show prices rising by 18% in July. The currency stabilised in mid August following the implementation of the first US sanctions deadline. However, with another deadline coming up, currency depreciation and inflationary pressures will accelerate again. Major risks to our forecast Scenarios, Q2 2018 Probability Impact Intensity Net foreign direct investment turns significantly negative as a result of US Very Very high 25 sanctions high Very Planned major foreign investments in Iran's infrastructure fail to materialise High 20 high Very The nuclear deal collapses following US withdrawal High 20 high US sanctions lead to a near halt in foreign trade financing High High 16 Restrictions on internet access hinder the development of broadband and Very high Moderate 15 e-commerce Note. Scenarios and scores are taken from our Risk Briefing product. Risk scenarios are potential developments that might substantially change the business operating environment over the coming two years. Risk intensity is a product of probability and impact, on a 25-point scale. Source: The Economist Intelligence Unit. Country Report August 2018 www.eiu.com © Economist Intelligence Unit Limited 2018 Iran 4 Outlook for 2018-22 Political stability The Economist Intelligence Unit expects the position of the president, Hassan Rouhani, to weaken in 2018 22, despite him being reelected comfortably in May 2017. His major foreign policy achievement is the 2015 Joint Comprehensive Plan of Action (JCPOA), a nuclear deal signed with world powers that lifted nuclear-related sanctions on Iran in return for stringent restrictions on its nuclear programme. However, on May 8th the US president, Donald Trump, withdrew the US from the agreement, lifting US waivers on nuclear-related sanctions in order to re-impose and widen US sanctions. This move undermines Mr Rouhani, and strengthens the position of his more hardline opponents, some of whom had opposed the deal. Partly as a result of this, the president's previous push for economic liberalisation and social reform is unlikely to make any progress in the forecast period. US sanctions will enforce the need for a less open economy, while fears of regime- threatening unrest as economic conditions worsen are likely to lead to tighter social restrictions in some cases. In particular, the Islamic Revolutionary Guards Corps (IRGC) will probably strengthen its grip over both the economy and the country's foreign policy agenda, given its long-standing opposition to the US. As economic conditions deteriorate and water shortages worsen, the intensity of widespread protests against the authorities will mount, sporadically turning violent. However, the lack of a clear leader for protestors to unite around and the strength of the security services mean that we do not expect regime change in 2018 22.

Load more