Amir Reza Souri

 Abstract

An analysis of the trends in macroeconomic variables over the past half-decade reflects the most profound experience of stagflation in Iran in recent years. The economic slowdown, rising costs of production, untapped production capacities, exchange rate appreciation, and uncertainties in foreign exchange market, dwindling investments, channeling of financial resources toward unproductive activities, double-digit rates of inflation, etc. are among the major characteristics of the period, particularly in 2012 and 2013, which fact is only confirmed by economic growth rates of -6.8 and -1.9 percent, gross fixed capital formation growth rates of -23.8 and -6.9 percent, as well as inflation rates of 30.5 and 34.7 percent over these two years. Although the economy witnessed a growth rate of 3 percent in 2014, heralding an end to the depression, such factors as declining global oil prices seriously prevented the continuation of the trend in 2015. For instance, a significant part of the 6.9 percent value-added growth in industry and mining sector in 2014 was attributed to auto industries (some 51.2 percent); in that same year, from among 24 two-digit codes of economic activities, the large scale industrial production index of 14 activities had a positive growth and that of 10 activities had negative growth rates, which shows the unsustainability of industrial growth.

The implementation of JCPOA and the removal of international sanctions paved the ground for leaving stagflation behind. International institutions including IMF, the World Bank and the Economist Intelligence Unit have predicted Iranian economic growth, inflation and unemployment rates for the next year to be in such ranges as 4.3 - 5.8, 11.5 - 12.5 and 12.3 - 12.5 percent respectively. The relative improvement in the coming year has mostly been attributed to increased oil production and exports.

The results of a survey of 120 industrial, mining and commercial entities shows that the volatility of raw material prices, high production costs (as a hurdle for exports), and lack of liquidity have been their most important challenges in recent years. Furthermore, lack of liquidity, high exchange rates, demand side depression, and high interest rates are among the major challenges facing economic entities in 2016. Together, these factors indicate the high vulnerability of economic actors in the field of industry, mining and trade to macro-economic developments and policies.

Most economic experts and authorities, envision a promising future for the Iranian economy in 2016, and accordingly, the economic growth, growth of value added in the industry and mining sectors, and growth of gross fixed capital formation have been predicted at 4.6, 9 and 7 percent respectively. In addition, the economic downturn due to insufficient demand, lower revenues due to continued low oil prices, pressure on the state budget, and the inability of the financial system to support economic enterprises have been cited as the most significant economic challenges in 2016. The increased inflow of foreign investment, reduced transaction costs, increased trade with other countries, increased economic interactions at the international level, and lower interest rates have also been considered as the most important developments in 2016.

Keywords:

Macroeconomic, Foreign exchange market, Growth