Iran Country Report May18 - May, 2018

May 4, 2018

Iran’s real GDP growth is forecast to edge down to 4.0% in both 2018 and 2019 after coming in at 4.3% in 2017, according to the latest edition of the World Economic Outlook issued by the International Monetary Fund (IMF) on April 17. IMF noted that higher investment growth will be offset by lower oil production growth and limited access to finance.

Nonetheless, this figure is a shortfall from the impressive 12.5% economic growth recorded in the last Persian year ended March 20 since international sanctions were lifted in January 2016. Besides the effect of a slowdown in its oil sector following an exceptionally high 2016 surge, activity in Iran was dampened by weak foreign investor confidence associated with geopolitical tensions (including new sanctions and a hardened nuclear-deal stance by the United States).

The Iran accord, formally known as the Joint Comprehensive Plan of Action (JCPOA), signed in late 2015 by Iran and six world powers, removes oil export, banking and other sanctions that had crippled the Iranian economy. US President Donald Trump has warned he will back out of the JCPOA by May 12 if some of its terms are not toughened. However, officials from France, Germany and the US appear to be working on a plan to buy more time to save the JCPOA by addressing some of Trump's concerns over Iran's development of ballistic missiles.

If the accord entirely unravels, Iran's hopes for economic expansion in the years ahead would then take a much greater hit through impacts on trade, investment and available financing. That's a big worry for a country that has lately faced nationwide street protests largely blamed by most observers on growing economic hardship, particularly in the provinces.

But as the US and other deal signatories have continued their dispute over the effectiveness of the deal since Trump arrived in the White House, foreign business with Iran has incrementally built up. In July last year French energy major Total agreed an initial billion-dollar investment in developing part of the South Pars gas field, while several major credit lines, including a €1bn facility from Austria’s Oberbank and a €500mn financing package from France’s state investment bank BPI France, have been opened to assist Europeans doing business in Iran. Boeing and Airbus also inked preliminary contracts for aircraft deliveries with Iranian airlines at last year’s Paris Air Show.

Meanwhile, IRR plummeted to a record low of 63,000 to the dollar just after the Iranian new year. That caused the Iranian government to essentially abolish open market trading in the currency and unify the official and unofficial rates on April 23. As part of the currency market shake-up, foreign exchange outlets have been banned from selling hard currencies. Only licensed banks may now do so.

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