IMF: U.S. Sanctions Drive Iran’s Economy Into Recession

Iran's economy is expected to shrink by 1.5 percent in 2018 and by another 3.6 percent in 2019, the International Monetary Fund (IMF) said in the October update of its World Economic Outlook, heavily downgrading the Islamic Republic's growth prospects with the return of the U.S. sanctions.

The IMF downgraded the economic growth forecasts for the whole region of the Middle East, North Africa, Afghanistan, and Pakistan, compared to the April edition of the World Economic Outlook, reflecting "to an important extent the worsening of growth prospects for Iran, following the reimposition of US sanctions," the IMF said in the October outlook.

Iran's economy is now forecast to contract this year and especially in 2019, by 3.6 percent, "on account of reduced oil production, before returning to modest positive growth in 2020-23," according to the IMF.

In 2017, Iran's economy grew 3.7 percent.

Consumer prices in Iran, which rose by 9.6 percent in 2017, are now projected to jump by 29.6 percent this year, and by 34.1 percent next year, the IMF's estimates show.  

In its March report on Iran's economy, published a month and a half before the U.S. announced that it was re-imposing sanctions on Iran, the IMF expected that following the strong rebound after the 2016 nuclear deal, Iran's economic growth would be 4.3 percent in the 2017/18 fiscal year. For 2018/19, the real economic growth was expected to moderate, but still, the IMF expected Iran's economy to grow by 4 percent in 2018/19, forecasting stable oil production in line with the OPEC cap on Iran's production.

However, the returning U.S. sanctions now have made the IMF revise sharply down the economic prospects of Iran, to a recession this year and next.  

Commenting on oil prices, the IMF said in its latest outlook:  

"Although risks are balanced, uncertainty remains substantial around the baseline assumptions for oil prices because Saudi Arabia's spare capacity is shrinking and US sanctions against Iran will both weigh on Iran's oil production prospects in the medium term and reduce Iran's crude exports in the short term, requiring others with spare production capacity to step in."

By Tsvetana Paraskova for Oilprice.com

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