Notes

Note 1:In this Report the growth rate of a variable means the percentage change of that variable during the period under review, or at the point under discussion, from the similar period or point in the preceding year. As such, “the growth rate of oil revenues in the first quarter of 1396” indicates the percentage change in oil revenues between the first quarter of 1395 and the first quarter of 1396.

Note 2:The Persian Calendar is a solar calendar in which years start on the first day of spring and end on the last day of winter. The four quarters of the year correspond exactly to the four seasons. The current Persian year is 1396 that started on March 21, 2017, and ends on March 20, 2018. The third quarter of 1396 (referred to as 1396Q3), fall of 1396, roughly corresponds to the fourth quarter of 2017 in the Gregorian calendar (2017Q4).

 

The following table provides an easy reference while reading this Report:

1395Q3 = 09/22/2016 – 12/20/2016, roughly 2016Q4

1395Q4 = 12/21/2016 – 03/20/2017, roughly 2017Q1

1396Q1 = 03/21/2017 – 06/21/2017, roughly 2017Q2

1396Q2 = 06/22/2017 – 09/22/2017, roughly 2017Q3

1396Q3 = 09/23/2017 – 12/21/2017, roughly 2017Q4

 

Iran’s Economy at a Glance

 

	1395Q2	1395Q3	1395Q4	1395	1396Q1	1396Q2	1396Q3
Participation and Unemployment Rates (percent)
Participation(10 years and over)	40.4	38.9	38.9	39.4	40.6	41.0	-
Unemployment (10 years and over)	12.7	12.3	12.5	12.4	12.6	11.7	-
Unemployment (Youth ages 15-24)	30.2	30.4	28.1	29.2	28.8	27.3	-
Real Growth Rates of GDP and its Subsectors at Constant 1390 Prices (percent)*
Gross Domestic Product (GDP)	12.9	16.8	12.9	12.5	6.2	5.2	-
Oil	66.2	77.7	47.1	61.6	4.7**	3.9**	-
Agriculture	4.1	5.0	4.4	4.2	3.1	-0.5	-
Industries and Mining	3.0	4.1	6.4	2.2	4.8**	3.7**	-
Services	4.2	6.0	4.9	3.6	7.3	7.1	-
GDP (Excluding Oil)	3.9	5.4	5.6	3.3	6.6	5.5	-
Gross Fixed Capital Formation	3.1	-9.5	3.1	-3.7	4.9	1.4	-
Oil (thousand barrels per day)
Production	3,639	3,963	3,909	3,761	3,878***	3.864***	-
Export	2,157	2,426	2,316	2,224	-	-	-
Inflation Rates (percent)
Growth Rate of Consumer Price Index (1395=100)	9.2	8.9	10.5	9.1	11.4	8.8	9.3
Growth Rate of Producer Price Index (1390=100)	3.0	5.2	8.8	5.0	8.9	9.9	11.2
Balance of Payments (USD million)
Oil Exports	13,167	15,070	15,875	55,752	14,166	-	-
Non-Oil Exports	6,073	7,078	7,811	28,226	7,176	-	-
Imports of Goods	15,114	16,761	18,879	63,135	16,283	-	-
Goods Account (Net)	4,126	5,387	4,807	20,843	5,059	-	-
Non-Oil Goods Account (Net)	-8,718	-9,135	-10,851	-33,521	-8,814	-	-
Current Account	3,459	3,225	4,473	16,388	3,723	-	-
Capital Account	-5,814	-3,298	-4,154	-18,288	-1,338	-	-
Change in Foreign Reserves	-1,473	-231	209	-7,666	-1,585	-	-
Foreign Exchange Rates (USD/IRR daily average)
In Free Market	35,326	36,987	38,581	36,487	37,494	38,236	40,719
In Inter-bank Market	31,014	31,845	32,380	31,458	32,445	32,900	34,800
Monetary and Credit Aggregates (end of period, in IRR trillions)
Monetary Base(MO)	1,655.1	1,704.7	1,798.3	1,798.3	1,851.9	1,964.9	-
Central Bank Claims on Banks	942.2	1,047.9	996.9	996.9	1,013.7	1,097.1	-
Central Bank Claims on Public Sector (Net)	325.3	233.1	202.6	202.6	282.0	292.2	-
Liquidity (M2)	11,227.1	11,848.6	12,533.9	12,533.9	13,149.1	13,899.5	-
Money (M1)	1,480.3	1,540.7	1,630.3	1,630.3	1,647.1	1,682.4	-
Sight Deposits	1,151.1	1,213.0	1,237.0	1,237.0	1,307.0	1,337.7	-
Non-sight Deposits (Quasi-money)	9,746.8	10,307.9	10,903.6	10,903.6	11,502.0	12,217.1	-
Government Budget (IRR trillions)
Total Revenues	580.9	473.5	892.7	2,202.7	426.1	590.5	-
Tax Revenues	248.2	221.9	359.7	1,014.7	181.9	249.3	-
Oil Revenues	201.5	176.8	316.9	738.8	188.9	257.8	-
Other	131.1	74.8	216.1	449.1	55.3	83.5	-
Total Expenditures****	674.7	488.2	912.4	2,491.2	600.8	596.9	-
Current Expenditures	582.2	449.2	670.0	2,070.2	548.8	526.1	-
Development Expenditures	120.9	36.0	262.7	421.0	8.2	70.0	-
Budget Balance	-93.8	-14.7	-19.7	-288.6	-174.7	-6.4	-
Tehran Stock Exchange (end of period)
Overall Index (TEDPIX)	76,451	80,123	77,230	77,230	78,736	85,832	95,509
Financial Index	155,263	151,049	131,865	131,865	130,664	129,604	134,057
Industrial Index	63,495	67,466	66,100	66,100	67,681	74,823	74,078
Market Capitalization (IRR trillion)	3,168	3,374	3,220	3,220	3,201	3,396	3,946

 

Sources: Central Bank of Iran (CBI), and Statistical Centre of Iran (SCI), various reports

Statistics for 1395 are based on CBI reports at basic prices and statistics for spring and summer of 1396 are based on SCI r eports at market prices.

** Due to differences in the definitions of “Oil” and “Industries and Mining” sectors by CBI and SCI, growth rates of these two sectors in spring and summer of 1396 are not fully comparable to their growth rates in preceding quarters.

*** According to OPEC reports from direct sources

**** The difference between the data on sum of current and development expenditures and total expenditures in a given quarter is due to the fact that revolving funds are not settled in each quarter but only at the end of the year.

 

1. The Real Sector

As we enter the last quarter of 1396, the Central Bank of Iran (CBI) is yet to publish any statistics on Iran’s GDP in 1396. But the latest data released by the Statistical Center of Iran (SCI) indicate that at mid-year 1396 (1396H1), Iran’s GDP stood at IRR7,807 trillion in current prices and registered 5.6 percent real growth for 1396H1, and 6.0 percent should the oil sector be taken out. According to SCI, all sectors of the economy along with their main subsectors showed positive growth in this period. Extraction of oil and natural gas grew by 2.7 percent in 1396H1, which is much below its performance in 1395, but that was to be expected. As a result of unusually low rainfalls, agriculture sector contracted in the second quarter (1396Q2) for the first time since 1392Q4, and is expected to contract further. Services sector that accounts for just over half of the GDP, rose by 7.1 percent in summer while construction sector continued to grow for the third consecutive quarter.

An examination of GDP from the expenditures side reveals positive growth in gross fixed capital formation in both machinery and construction in 1396H1. Gross fixed capital formation grew by 3.1 percent and reached IRR100.3 trillion in current prices, accounting for 12.8 percent of the GDP. Private consumption rose by 7.3 percent and government consumption expenditures by 7.2 percent in 1396H1. Net exports of goods and services contracted by 1.5 percent in 1396Q2, mainly due to the surge in the value of imports.

 

 

1.1 Energy

Iran’s average crude oil production that had risen considerably in 1395Q3 and reached 4 million barrels per day (bpd), was hovering around 3.8 and 3.9 million bpd from the early winter of 1395 to the middle of fall of 1396. According to the latest OPEC report, Iran’s crude oil production in the middle of 1396Q3 rose to 3.9 million bpd, almost the same level as in late spring. Iran’s average heavy crude oil price rose steadily in recent months and reached USD59.3 per barrel in the middle of 1396Q3. Iran’s heavy crude oil price had dropped earlier to as low as USD44.6 per barrel in late spring.

 

1.2 Housing

Since the data on the country’s housing market are released with several months lag, one can use the available information on Tehran’s housing market as proxy. Tehran housing market experienced 50.2 percent rise in number of transactions and 14.9 percent rise in average price of a square meter of residential units in the last month of 1396Q3, which are the highest growth rates since the beginning of 1393. Inflation rate as measured by the point-to-point consumer price index (CPI), registered 10.0 percent at the end of fall, indicating steady rise in real price of residential units for four consecutive months. The number of transactions in Tehran housing market reached 46 thousand, far above that in falls of the past four years. Also, statistics show that normally the number of transactions in the first two months of winter is much above that in the rest of the second half of each year. Given the 20.4 percent jump in the number of transactions observed in 9/1396 from its preceding month, it is not expected to increase further in the first two months of winter. Under such circumstances, the rise in housing prices and the number of transactions are expected to lead to boost private investment in housing

Recent developments in the housing market signal the end of the deep recession of recent years. The CBI-imposed ceiling on deposit interest rates in late summer is thought of as a driver of the housing market boom. Should the banks adhere to the lower rates, further transfer of funds to the housing market and thereby rises in the price and number of transactions may be expected.

 

1.3 Labor Force

The unemployment rate among population aged 10 and above dropped by one percentage point in 1396Q2 from a year earlier to reach 11.7 percent. This was a very positive development as the point-to-point unemployment rate had been steadily rising for eleven quarters from 1393Q3 to 1396Q1. On the other hand, the economic participation rate followed its upward trend that had started in 1393Q3 and rose by another 0.6 percentage point to 41.0 percent in 1396Q2. During this season, active population rose by 614 thousand due to 181 thousand fall in the number of the unemployed and 795 thousand rise in the number of the employed population. The number of employed population registered 23.8 million, corresponding to 36.2 percent of the population aged 10 and above. Out of this 23.8 million, 49.5 percent were employed in services, 31.4 percent in manufacturing, and 19.1 percent in agriculture. 84.4 percent of the employed population were in the private sector and the remaining 15.6 percent in the public sector. The share of underemployment fell to 9.2 percent in that quarter. Most of the labor market indices improved in this summer compared to the last.

During the past two decades, the unemployment rate among the population aged 15-29 has been far above the average for other major age groups. Among the 5-year-interval age groups, population aged 20-24 accounted for the highest unemployment rate of 30.5 percent, consisting of 24.4 percent among males and 51.2 percent among females, pointing to undesirable labor market conditions for the latter group. The economic participation rate of population aged 20-24 was 66.6 percent for males and 20.0 percent for females, indicating that only one-fifth of the females in that age group had entered the labor market. Population aged 40-44 had the highest economic participation rate of 59.7 percent, consisting of 93.8 percent for males and 24.5 percent for females in this age category. Figure 3 depicts unemployment and economic participation rates in various age groups in 1396Q2.

 

2. Prices and inflation

The point-to-point consumer price inflation rate reached 8.4 percent in 7/1396 following its downward trend from the beginning of summer, but reversed course and rose by 1.6 percentage points to 10.0 percent at the end of 1396Q3. The average annual Inflation rate at the end of each month that had turned single-digit again at the end of summer, was stable during fall and registered 10.0 percent at the end of that season.

The point-to-point producer price index (PPI) inflation rate reached 11.6 percent in 7/1396 following its upward trend from the middle of spring, but then reversed course and fell by 0.9 percentage points to 10.7 percent at the end of 1396Q3. Given the lagged effect of PPI inflation on CPI inflation, part of the increase in point-to-point CPI inflation rate at the end of fall could be attributed to the upward trend of PPI inflation rate in recent months. Accordingly, further rise in the point-to-point CPI inflation rate in the remainder of the year is expected.

Point-to-point inflation rate of tradable goods followed a downward trend through the end of summer and reached 8.5 percent, but then reversed course and rose by 1.7 percentage points to 10.2 percent in 8/1396, partly because of the IRR depreciation against foreign currencies since the beginning of the summer. Given further IRR depreciation in fall, the point-to-point inflation rate of tradable goods should have risen in the remaining months of that season. As for non-tradable goods, the point-to-point inflation rate registered 8.0 percent at the end of 7/1396 following its downward trend, but again rose and reached 8.9 percent in 8/1396.

Based on the latest CBI report on CPI inflation, during 1396Q3 out of the 12 main groups in the consumption basket, the point-to-point inflation rates in 9 groups rose but in the other three groups fell. The rises in point-to-point inflation rates of “Housing, water, electricity, gas and other fuels” and “Foods and beverages” that are the top 2 in the consumption basket in terms of weight, were the main contributors to the rise in the point-to-point CPI inflation rate from 8.4 percent at the beginning of fall to 10.0 percent at the end of that season.

The SCI also released CPI inflation rates at the end of 1396Q3, including, for the first time, by income deciles. According to its report, the average annual CPI inflation rate in the consumption basket of goods and services registered 8.8 percent for the lowest income decile, and 7.6 percent for the top income decile. The difference between the two rates is due to the difference in their consumption baskets, including the higher weight of food in the consumption basket of the poor and the higher inflation of food items. Note also that with the recent updating of the base year in CPI calculations, the weight of foods in the consumption basket has fallen while that of housing has risen.

As mentioned earlier, because of the upward trend of PPI inflation rate in recent months, the CPI inflation rate is expected to rise in soon and probably turn double-digit. The Majlis Research Center and the IMF have projected the end-of-year annual inflation rates of 10.5 percent and 9.9 percent, respectively.

 

3. Balance of Payments

According to the International Energy Agency statistics, in 1396Q1 Iran’s average crude oil production rose by 5.0 percent to 3.8 million bpd. Iran’s average oil price also rose by 17.7 percent to USD48.2 per barrel in that quarter. The volume of Iran’s oil exports in 1396Q1 is expected to have been higher than that in 1395Q1, although CBI is yet to publish its official data in this regard. CBI’s balance of payments statistics indicate that during spring, value of oil exports (including crude oil, oil products, natural gas, natural gas condensates and liquids) has increased by 21.7 percent to USD14.2 billion. Taking into account slight changes in oil imports (including oil products, natural gas, natural gas condensates and liquids), the oil trade balance in this period jumped by 22.3 percent and reached USD13.9 billion.

In 1396Q1, non-oil exports fell by 1.2 percent to USD7.1 billion, while its imports rose by 32.4 percent to USD16.0 billion; the latter resulted in 83.0 percent rise in non-oil trade deficit. Part of the rise in non-oil trade deficit could be attributed to the fall in IRR’s real exchange rates that made domestically produced goods less competitive in global markets.

Taking into account changes in oil and non-oil exports and imports, the goods account surplus fell by 22.4 percent in spring to USD5.1 billion. Considering the negligible changes in “services”, “income”, and “current transfers” accounts, the current account surplus fell by 28.8 percent to USD3.7 billion. Table 5 shows the current account balance and its subgroups during 1394Q1 to 1396Q1.

Data on the capital account shows USD1.3 billion of net capital outflow during 1396Q1, 73.4 percent below that in 1395Q1. As no detail statistics on the capital account have been made available, shares of foreign direct investment (FDI), portfolio investment, and other types of investments in the capital outflow cannot be assessed. Considering changes in the current and capital accounts and about USD4.0 billion of errors and omissions, the balance of international reserves is estimated to have fallen by USD1.6 billion since 1395Q4 to reach USD119.1 billion at the end of 1396Q1.

On the basis of statistics published by Customs Administration, non-oil exports (excluding suitcase trade) in the first eight months of the year amounted to USD28.5 billion, indicating 1.2 percent fall. China, Iraq, UAE, South Korea, and Afghanistan were the main destinations of Iran’s exports in the period under review. In this period, Iran’s exports to China rose by 13.5 percent, to Iraq by 6.5 percent, to South Korea by 28.1 percent and to Afghanistan by 12.1 percent, while exports to UAE fell by 18.7 percent compared to the same period of the preceding year. Natural gas condensates valued at USD4.6 billion, liquefied propane at USD897 million, light crude oil except gasoline at USD764 million, methanol at USD752 million, and polyethylene film grade at USD750 million, were the major exported items in the period under review.

During the first eight months of the year, goods imports rose by 17.5 percent to USD32.4 billion, mainly due to the rise in imports of essential goods, auto parts, vehicles and capital goods. The highest levels of imports to Iran in terms of value were from China at USD8.0 billion, UAE at USD5.7 billion, Turkey at USD2.2 billion, South Korea at USD1.8 billion, and Germany at USD1.7 billion. Rice valued at USD1.0 billion, cattle feed corn at USD980 million, auto parts at USD972 million, soybean at USD669 million, and 1500-2000cc motor vehicles at USD643 million were the main imported items in the period under review.

 

4. Foreign Exchange Market

The foreign exchange market was more volatile in 1396Q3 than in its preceding quarters. The upward trend of free market USD/IRR exchange rate that had started in early summer, speeded up in the middle of that season and the rate exceeded 39,000 at the end of that season.

In advance of the US president’s speech regarding his assessment of the degree to which Iran had adhered to the JCPOA, the USD/IRR exchange rate surpassed 40,000. But as his speech was less aggressive than the market anticipated and EU authorities also voiced their support for the JCPOA and Iran’s adherence to it, the rate did fell a bit and hovered around 40,000 in the remainder of 7/1396. This exchange rate increased again in 8/1396 and exceeded 42,000 in the middle of the last month of fall because of the increased demand for foreign currencies by commercial companies for their international settlements but by the end of the season it stood just below 42,000. Overall, in 1396Q3 the free market USD/IRR exchange rate rose by 6.3 percent compared to 1396Q2 and by 9.9 percent compared to 1395Q3.

As for the official USD/IRR exchange rate, the upward trend that had speeded up in summer, continued in fall too. However, the sharp rise in the market USD/IRR exchange rate in fall widened the gap between the official and free market rates from around 16.5 percent in four consecutive months to 17.5 percent at the end of fall. The gradual disqualification of import items from receiving foreign exchange at official rates that started in late summer is a noteworthy development and may signal a move towards the long promised exchange rate unification.

The annual CPI inflation rate that has been rising since the beginning of the year, turned single-digit again in the late summer and was stable at 9.9 though the end of 8/1396 before rising to 10.0 percent at the end of fall. In effect, it appears that in the year between 1395Q3 and 1396Q3, the free market USD/IRR exchange rate has moved at the same rate as the CPI. Given the low global inflation rate, this implies a little appreciation of the USD/IRR’s real exchange rate – which is a welcome development for the economy.