Sanctions-hammered Iran saw GDP shrink 8.7% in 2019 and can’t expect growth in 2020 says World Bank

Sanctions-hammered Iran saw GDP shrink 8.7% in 2019 and can’t expect growth in 2020 says World Bank
For Tehran and the rest of Iran the economic situation is even tougher than previously feared.
By bne IntelliNews January 10, 2020

The “economic war” waged by the US against Iran has exacted an even worse toll on the Islamic Republic’s economy than was anticipated if the latest World Bank assessment is correct.

In the January 2020 edition of its Global Economic Prospects report released on January 9, the World Bank estimates that Iranian GDP contracted by as much as 8.7% in 2019, a year that saw the Trump administration gradually introduce tougher and tougher sanctions against Tehran including a drive to squeeze all Iranian oil off world export markets. In the June 2019 edition of the report, the international financial institution only foresaw a contraction of 4.5%.

In further bad news for Iran, while the World Bank six months ago was counting with a resumption of Iranian growth in 2020 to 0.9%, it now sees stagnation of 0.0%. And that figure, it added, “assumes that the impact of sanctions tapers somewhat”. Whether that tapering occurs may well depend on whether US President Donald Trump regards it as in his interests as his campaign to get re-elected in November ramps up.

Iranian GDP in 2018 shrank by 4.9% following growth of 3.8% in 2017.

The effects of the US throttling of Iran’s economy pushed Iranian inflation to more than 50% in mid-2019, partly reflecting the earlier severe depreciation of the Iranian rial (IRR) in the unofficial parallel market, but it subsided in late 2019 to below 30%.

German exports to Iran roughly halve

In another underlining of what a bitter experience the Trump sanctions—amounting to an “economic war” and “economic terrorism” in the eyes of Iran but described as part of a campaign of “maximum pressure” by the Americans—have been for the Iranians, Germany said on January 10 that its exports to Iran roughly halved in the first 11 months of last year compared with the same period in 2018, primarily due to the US measures.

Between January and November, German shipments to Iran fell by 48.2% to around €1.3bn ($1.44bn), official German data showed. Germany primarily delivers machines, chemical products, food and pharmaceutical products to Iran. German imports from Iran dropped by 54.7% to around €191mn in the same period.

The data will add to Iran’s case that Europe has done next to nothing to shield its trade and economy from the Trump sanctions. Making that argument, Iran has been edging towards the exit door of the 2015 nuclear deal, supposed to protect the Iranians from major sanctions in return for measures aimed at preventing Tehran from adopting any programme for the development of a nuclear weapon. Trump unilaterally pulled the US out of the accord between Iran and six major powers in May 2018 and switched to a sanctions policy in an effort at forcing the Iranians to accept an agreement that would place even tighter restrictions on their nuclear development activities, curtail their ballistic missile development programme and ban the military backing they provide to various militias across Middle East conflict zones.

In a section on fiscal challenges faced by economies, the latest World Bank Global Economic Prospects report noted that Iran is a country where subsidies for products subject to price controls, such as petroleum, amount to a large portion of government expenditures that exceeds 10% of GDP.