TEHRAN: World Bank Group in its latest analysis of Iran’s economy has forecast Iran’s economy to grow at an annual average rate of 4.5% in 2016–18. The bank, in Iran Economic Monitor for fall, has revised up the real GDP growth for 2016 by 0.1%age points at 4.3%, reflecting a larger increase in oil and gas production. In particular, the oil and gas sector is projected to grow by 14.5% in 2016 up from 12.9% in the previous IEM.
Over the medium term (2017–18), investment is likely to play a much larger role in generating growth on the assumption that new investment deals currently being negotiated will materialize in 2017-18, and financial linkages with the rest of the world will be restored. In particular, the 4.7% average growth projected for 2017-18 is expected to be driven by a 7.9% average increase in total investment. With renewed confidence in the economy and a lower inflationary environment, consumption is expected to grow at an average of 3.5% over 2016-18.
Inflation is expected to ease into single digits in 2016 for the first time since 1990. Consumer price inflation is forecast to register 8.6% in 2016, down from 34.7% in 2013, as a result of curbing inflationary expectations, fiscal discipline, lower commodity prices and easing import costs in the wake of the partial lifting of the sanctions. This might create room for the central bank to ease its monetary policy by lowering interest rates with the objective of reducing borrowing cost and boosting growth. However, as reflected in the recently rising monthly rates, there are increasing pressures on the disinflationary trend and continued tight fiscal and monetary policies will be important to keep inflation in check.
The fiscal position is expected to improve for the first time since 2012. After an estimated deficit of 1.6% of GDP in 2015, the fiscal balance is projected to improve by 1.2% of GDP in 2016 as a result of an expected surge in the volume of oil exports, which will outweigh the projected drop in prices. In parallel, non-oil revenues are likely to increase due to recovery in economic activity, continued expansion of coverage of value added tax and an estimated $3 billion windfall in frozen assets.
