Jolted By US Sanctions, Iran Slips Deeper Into Recession

Published January 15th, 2020 - 12:41 GMT
Jolted By US Sanctions, Iran Slips Deeper Into Recession
The unemployment rate has increased to 17 per cent, with youth unemployment of around 30 percent. (Shutterstock)
Iran slips deeper into recession, real GDP to contract 8%

Battered by the sanctions, Iran slipped deeper into recession and will be the second worst performing economy globally as it will witness faster economic contraction in current fiscal year than the previous one, said a new study.

International Institute of Finance (IIF) said the Iranian economy contracted by 4.6 percent in fiscal year 2018-19 ended in March as a result of the sanctions.

"We expect the contraction to deepen to 7.2 per cent in the current fiscal year, 2019-2020. Most of the contraction is due to the sharp decline in volume of exports of crude oil and condensates, which dropped from a peak of 2.8 million barrels a day in May 2018 to less than 0.4 mbd in recent months," said Garbis Iradian, chief economist for Mena at IIF.

Globally, Venezuela's economy will be the worst performing economy, contracting by 15 per cent.

The re-imposition of US sanctions in May 2018 hit the Iranian oil sector hard and caused foreign investment to dry up, including disruption of major business deals with the European Union. Iran is reducing its reliance on oil exports by increasing taxes and cutting energy subsidies, which raised annual inflation level to 50 per cent.

The recent spike in tension between Washington and Tehran will also have repercussion for the Iranian economy in the months to come as the Middle Eastern country witnesses protests due to rising costs and tension with the America.

"Tight US sanctions have virtually wiped out Iran's ability to sell crude oil and condensates and pushed its economy into deep recession for a second consecutive year and raised annual inflation to 50 per cent - the highest rate in the past two decades," he added.

IIF noted that Iran's real GDP will contract by eight per cent in current fiscal year.

The spread between the official and the parallel market exchange rates widened following the re-imposition of US sanctions. As of January 10, the official exchange rate was 42,000 Iranian riyals while the black-market rate was 132,800 riyals.

As a result of slump in economy, the current account balance has shifted to a small deficit for the first time since 1998. Iran's official reserves are likely to decline further to $73 billion by March 2020 - a loss of nearly $40 billion in just two years.

"We also estimate a decline in nominal GDP of $97 billion to $275 billion in FY 2018/19. The unemployment rate has increased to 17 per cent, with youth unemployment of around 30 per cent," IIF's Iradian said.

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