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publication October 7, 2021

Iran's Economic Update ¡ª October 2021

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Iran¡¯s economy exited a two-year recession in 2020/21, aided by limited COVID-19 mitigation measures and a gradual rebound in oil production in the second half of 2020. Yet, poor economic activity, partly due to US sanctions, low oil revenues and higher recurrent and COVID-19 related expenditures widened the fiscal deficit, leading to significant inflationary pressures and currency depreciation. Growth is expected to remain modest and challenged by further waves of COVID-19 variants, uncertainties in the materialization of sanctions relief, recent tensions in Afghanistan, and climate change impact.

Recent Developments

Iran¡¯s economy witnessed a moderate recovery in 2020/21 following more than two years of recession. A gradual recovery in global demand and limited COVID-19 lockdowns contributed to stronger growth in the oil sector and in manufacturing which led GDP to grow by 3.4% in 2020/21. The latest industrial production data indicates a decline in economic activity after the spread of the Delta variant in August 2021. The employment population ratio in Apr-Jun 2021 remains 2.1 percentage points below the pre-pandemic level with a disproportionate negative impact on women.

Outlook

Iran¡¯s economic outlook is shaped by the expectations about the course of the pandemic, the recovery in demand from export partners, and geopolitical developments. Average GDP growth is projected to remain under 3% per annum in the medium term. Domestically, slow COVID-19 immunization in the face of the large Delta variant and potential lockdowns alongside low investment rates are key drivers of the outlook.