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World Bank Data: Iran’s Economy Recovering

World Bank Data: Iran’s Economy Recovering

Mark Dubowitz
20th January 2014 - FDD Policy Brief

Co-authored by Rachel Ziemba

Iran’s economy is showing early signs of recovery. In its recently-released Global Economic Prospects report, the World Bank projects that Iran’s real 2014 GDP is expected to grow by 1.0 percent after a recession in 2012 and 2013. The Iranian economy is further projected to grow by 1.8 percent in 2015 and another 2.0 percent in 2016.

This admittedly modest growth stands in sharp contrast to the last two years. The World Bank estimates that the Iranian GDP contracted by 1.5 percent in 2013. This was preceded by a 2.9 percent drop in 2012. Similarly, the International Monetary Fund’s (IMF) World Economic Outlook Database, last updated in October 2013, reports that Iran’s GDP (in constant prices) dropped 1.9 percent in 2012 and continued to decline in 2013 at an estimated rate of -1.5 percent. 

The IMF, similar to the World Bank’s projections, sees Iran’s economy beginning to rebound with an estimated growth rate of 1.3 percent and 1.98 percent in 2014 and 2015, respectively. Both estimates for 2014 factor in some relaxation of existing sanctions and don’t anticipate new sanctions, which would likely contribute to a renewed recession as oil output falls.

This new data supports a recent analysis by Roubini Global Economics and the Foundation for Defense of Democracies, which drew on Iranian government statistics, and estimated that in the current fiscal year beginning March 2013, Iranian economic output has likely risen very slightly (less than 1 percent) as oil output flatlined and fiscal policy became slightly less supportive of growth. The deleterious impact of sanctions eased in mid-2013, even before the approval of the Geneva agreement, as the Iranian economy already reflected the shock of the tough sanctions imposed in 2012 and early 2013, the imposition of new sanctions eased after mid-2013, and market expectations began changing following the June election of President Hassan Rouhani.

There is now broad agreement that Iran’s economy is showing signs of recovery and stabilization after years of sanctions. There is reasonable room to disagree over whether this was sparked in part by an overall global economic recovery, better fiscal and monetary policies on the part of Iran since Rouhani’s election, changing market psychology, the de-escalation of sanctions, growing interest by international companies in returning to Iran, and/or a perception that the Obama administration may no longer be committed to ratcheting up the economic pressure on Iran. Regardless, American leverage at the negotiating table is weakening as a result of these economic trends. This could greatly complicate final negotiations for a peaceful resolution to Iran’s nuclear program.

Mark Dubowitz is executive director of the Foundation for Defense of Democracies. Rachel Ziemba is the director of emerging markets at Roubini Global Economics. This analysis is the tenth in a series from FDD’s Iran Sanctions Project’s ongoing assessment of sanctions relief on Iran’s economy. 

Tags

csif, energy, iran, sanctions