Tyranny of numbers

Personal consumption is the largest component of GDE, about half, so its collapse (in real terms) can bring down the economy even with the other two large components increasing. But of the latter investment, which is the next largest component accounting for about one-third of GDE, is very likely to follow private consumption. Private investment has been anemic as the oil boom dissipated late last year and public investment usually falls when the government is in financial trouble, again because the oil boom fizzled out last October.  Government consumption may have increased (the numbers are out on the CBI website and show increase in nominal terms but I have not checked them to see if they increased in real terms).  A definitive determination of the state of the economy in 2008 (1387) must await the publication of the national accounts data by Bank Markazi.

Iran will not be in the minority if the national accounts data do show a recession by any means.   Brazil’s economy shrank by more than 7% last year.  But, like Brazil, the countries that had negative growth generally experienced loss in their exports due to the global decline in demand.  Iran’s export earnings did not really fall.  Even if they did, there would be no reason for the economy to shrink because Iran’s (oil) exports do not directly affect employment. Our export sector does not employ many people.      The government certainly had enough money to keep demand up, but it did not.  It chose instead to fight inflation, which I think played a major role in bringing down the economy.

Declines in private incomes and expenditures of the order of magnitude indicated by the survey results for 1387 are unprecedented.   Here is a graph of GDP and Private Consumption per capita that gives the full history of fluctuations in Iran since 1959:

As the graph shows fluctuations in GDP per capita tend to be far greater than in private consumption.  The most recent decline in consumption, however, which took place in 1995  (about 3%) was not accompanied by a drop in GDP per capita.  But the decline in consumption for last year, once it is incorporated in the national accounts, is likley to be twice as large and may well pull down the GDP with it.   The release of the GDP data is not too far away, I hope, so we do not have to speculate for long.  Which makes me wonder: how do people who have to make economic decisions–the private sector–deal with the uncertainty?  Would it not be nice if the government let people know how the economy is doing more quickly to keep everyone up to date?  You may say that they do provide the information that people really care about–the rate of inflation–quick enough.  The rest is just for the nerds!