Iran’s Economy Contracts 10.1% as Oil Output, Exports and Investment Fall

Data published by Iranian media show that a 26.4% decline in the oil sector, a 35.7% drop in exports and money supply growth of more than 54% have simultaneously increased pressure on production, trade and household purchasing power.

Iran’s economy contracted by 10.1% in the first quarter of the Iranian year 1405 compared with the same period a year earlier, a decline that this time affected not only non-oil activity but also the oil sector, services, construction, investment and foreign trade. At the same time, reports for the Iranian month of Mordad showed point-to-point inflation reaching about 89%, while money supply growth remained above 54%, a combination of figures pointing to simultaneous pressure from recession and rising prices on the economy and Iranian households.

According to national accounts figures cited from the Statistical Center of Iran, gross domestic product at constant 1400 prices, including oil, reached 21,795 trillion rials in the spring, compared with 24,255 trillion rials in the same period a year earlier. The economy excluding oil also contracted by 4.6%.

Oil, Exports and Investment Declined Simultaneously

The oil and natural gas extraction sector fell by 26.4% in spring 1405 compared with the previous year. Gross fixed capital formation also declined by 8.4%, while exports of goods and services fell by 35.7%. Services contracted by 4.8% and construction by 6.4%; agriculture, with growth of 2.3%, was the only major sector in the cited data to record positive growth.

The declines were recorded as economic reports inside Iran cited war, trade restrictions, disruptions to transport routes, sanctions, sharp exchange-rate fluctuations and shortages of raw materials as factors that have increased the cost of production and trade. Industrial operators have also spoken of continued electricity and gas shortages and growing difficulties in securing raw materials.

Economist Saeed Laylaz, describing the long-term investment problem, said: “Over the past 25 years, Iran’s gross domestic product at constant prices has grown by 100%, but the wages of about 70% of Iranian society have remained unchanged.”He also said the share of gross fixed savings had fallen from 35% at the end of 1382 to 17%, while about half of the country’s industrial capacity remained idle.

The decline in investment continues as the government has sought to channel part of the foreign currency held outside the official system into productive projects. A report in the Shargh newspaper, citing the manager of a foreign-currency investment fund, estimated the amount of foreign currency held by households and investors at between $30 billion and $50 billion.

Money Supply and Inflation Are Passing Pressure on to Households

Central Bank Governor Abdolnaser Hemmati, commenting on monetary developments, said: “Money supply growth over the five months to the end of Mordad, compared with the end of 1404, was 19%.” Published calculations based on that figure estimate the volume of liquidity at about 18,500 trillion tomans, with point-to-point growth at 54.3%, slightly below the 56% peak reported for previous months.

The same report put point-to-point inflation in Mordad 1405 at about 89%, compared with around 35.3% in Bahman 1403. Foreign trade data also showed imports declining by 14.8% in the spring, a significant development for an economy that depends on imports for part of its raw materials, intermediate goods and production equipment.

Price pressures have also not been distributed evenly among households. Another report, based on inflation and labor-market data, put annual inflation in Mordad at 69.9% and the spring unemployment rate at 9.1%. Inflation for the second income decile reached 78.3%, while the tenth decile experienced 67.6%.

The gap is wider in food prices. Food inflation was reported at 109.4% for the first decile and 108.6% for the second decile. Households in the first decile spend about 42.4% of their expenditures on food, beverages and tobacco, compared with 21.6% for the tenth decile; as a result, rising food prices absorb a larger share of the budgets of lower-income households.

Provincial data also show significant disparities. Lorestan, with inflation of 84.6% and unemployment of 10.4%, recorded a combined inflation-and-unemployment index of 95. Tehran, by contrast, recorded a figure of 68.8, with inflation of 58.2% and unemployment of 10.6%, while Tehran’s employment ratio fell by 4.4 percentage points compared with the previous year.

The simultaneous decline in production, exports and investment, alongside high inflation and rapid money supply growth, is now transmitting pressure in Iran’s economy from macroeconomic indicators to food costs, employment and factory activity. The available data also show that improvement in one sector alone cannot provide a complete picture of the economy’s direction, because oil, trade, investment, domestic supply and monetary conditions are simultaneously affecting production and livelihoods.

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