The Institute of International Finance projected Iran's real GDP to shift from a growth rate of 4.1% in the fiscal year that ended in March 2018 to a contraction of 2.8% in FY2018/19, due to the expected sharp decline in crude oil exports, and to lower private consumption and investment. It anticipated a contraction of 2.1% in private consumption in FY2018/19 relative to an expansion of 2.5% in FY2017/18. It indicated that the first wave of U.S. sanctions on Iran took effect on August 7 and targeted the automotive sector and the trade in gold and other precious metals. It said that the second wave of sanctions, which are scheduled for November 2018, will be imposed on Iran's energy and financial sectors. As such, it anticipated real hydrocarbon GDP to shrink by 8.3% in FY2018/19 relative to a growth rate of 2.5% in FY2017/18, and for non-hydrocarbon real GDP to shift from a growth of 3.6% in FY2017/18 to a contraction of 1.2% in FY2018/19. Further, it noted that the Iranian rial has lost more than 80% of its value against the US dollar since the beginning of 2018. It pointed out that the significant currency depreciation has made imports very expensive, leading to a drop in industrial production, while it noted that non-oil exports could benefit from the weaker currency. It anticipated the average inflation rate to surge from 10% in FY2017/18 to 40.5% in FY2018/19, amid the steep currency depreciation. It noted that the government's inability to implement policies to control the currency depreciation and reduce the inflation rate is causing social discontent.
Source: Institute of International Finance